kkr insights 120408

7/29/2019 KKR Insights 120408

1/16

InsIghts

GLOBAL MACRO

TRENDS

InsIghts

GLOBAL MACRO

TRENDSApril 2012

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2 KKR InsIghts: global Macro trends

The Twin Roles oReal AssetsEconomic, geopolitical and demographic factorshave combined to create a compelling environment

for investments in real assetsespecially realestate, energy production, infrastructure and softcommodities. Such exposure may entail relinquishingsome liquidity, and is also susceptible to the risk of apullback in global economic growth. Yet, we believereal assets can still serve twin objectives: hedgingagainst the potential effects of easy monetary policyand possible consequences of a Mideast conflict; andgaining exposure to attractive incomeas well as yield

and growthin a low-rate environment.

KKR global MacRo & asset

allocatIon teaM

henRy h. McVey

Head of Global Macro &

Asset Allocation

+1 (212) [email protected]

DaVID R. McnellIs


FRances b. lIM


Rebecca J. RaMsey


MaIn oFFIce

K Ki r & c. l.P.

9 W 57 ssui 4200nw Yk, nw Yk 10019+ 1 (212) 750-8300

coMPany locatIons

Usa nw Yk, s Fi, Wi,d.c., M Pk, hu eURoPe l,Pi asIa h K, biji, dui, tky,

Mumi, su aUstRalIa syy

2012 K Ki r & c. l.P.a ri r.

7/29/2019 KKR Insights 120408

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KKR InsIghts: global Macro trends

bk i Juy 2012, w ui wi -

i f 10% u mk wi f 5%

f, uy fu m i y, w mi fi i

u uk. I f, i u u wiw, w wu iky

u y wk m .

Wy? bu, w wi pi i m i i fwi

p, w ii i m m

w i fi iiy ui pii

i -m:

1. Additial Cetral Bak Liidity Ijecti Cld Drie Ee

Mre Mey Tward Real Aet. t f -

p mk k i pp-

i u f i my pii i

miimi imp f w w, i fii i

uy wi. I , -k

f fu p mi ( Ui s,

eu, Jp, U.K.) 25% f i -

i gdP 37% f i mi quiy mk pii-

i. Fum, i i f i mui ,

m y mii i u

u i w mi f gdP

w f pi f im. hiy w iu f i i f ifiy i u.

2. We Wat t Frther Hedge Agait Rbt Cmmdity Price.

c u i uk f 2012 u

Phase IIIfmwk1 f u imi u

iw p i m i ii

f pi i m fii-i-

miy . hw, mp m ii (i

fm f fi imuu) w pii i

my w fui pi u f my mmiii i

piu. tf, w f mp mii ui

pu y ipu-

i f p pfiiiy.

3. Real Aet Are Icreaigly Pridig the Yield Cmpet

That Chagig Demgraphic Reire i Tday Lw Rate

Eirmet. My m iiy im-

i f i yi u f pi m mpi

if i i pf u y i by bm-

. W w-y ui i y. af , i

im f w mi u ui m

iquiiy, u w up ik ifi

i im my m m u. M,

i u iw i mpi f i

mk, w ik i iifi pi f upwui f yp f im pi i-

wi yi w mp.

lki i piu, w i u u --

i fmwk f my f ky m m w

pyi u. W mii i w w yi

ff m i yi u pii-

fi-im pu mi, i-yi mi-

1 s u pp i Phase III: The Last Stage of a Bumpy Journey,o2011, i KKr.m.

mk i i mpi. n upiiy, w iu

uwi m y fu 15%u u-

wi pii y f (Exhibit 1). a m im, u wi

pii i ii i i u ii pu

upi f ui umpi i ai, i uii i

eup ppuii i Ui s.

Fiy, w mi i w, w i-

iy f mi y i uy

f fw ff ffi fi

ii i y iiy iquiiy-i m m.

exhIbIt 1

KKR Global Macro & Asset Allocation Suggested PortoAllocation

AssET CLAss KKRGMAA

TARGET

AssETAL-

LoCATIon

(%)

BEnCH-

MARK(%)

DIFFER-

EnCE(%)

PuBLIC EquITIEs 50 53 -3

U.s. 20 20 0

eUroPe 12 15 -3

all asIa 12 12 0

latIn aMerIca 6 6 0

ToTAL FIxED InCoME 25 30 -5

global governMent 5 20 -15

MezzanIne 5 0 5

hIgh YIeld 5 5 0

hIgh grade 5 5 0

eMd 5 0 5

REAL AssETs 10 5 5

real estate 3 2 1

energY/InFrastrUctUre 5 2 3

gold/corn/other 2 1 1

oTHER ALTERnATIvEs 15 10 5

tradItIonal Pe 5 5 0

dIstressed & sPecIalsItUatIon

5 0 5

other 5 5 0

CAsH 0 2 -2

su: KKr g M a ai api 6, 2012.

1

2

3

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The Macro Case or Real Assets

Germet stiml i nw oerized. o f fi fim I

w i mi w s spi 1975

i, Jaws. a mm fm fim m mi i

wi pi if Mi by, py y ry si, i

w wu qui u w miy k im:

W i i !

I m wy, i m if w k iy

cif by 37 y i im, iwi pui f fii ii. I, i pp

my f m iiiy pu ii my fi

wi fm f g ri. bu f -

ii ii mu w u ui

mi y, y py my f i

.

hw i i k pi y? I

Ui s, my fi imuu i w 38% f

gdPfu f im w m p ui

g dpi (Exhibit 2). t eup c bk (ecb)

w 34% y--y f Fuy 2012,

i w i F i u i m. a, Exhibit 3 w, -k f fu

p mi w 25% f i -

i gdP (fm 20% y 11% i dm 2006)

37% f i i mk piii (fm 29% y

13% f 2006).

exhIbIt 2

Unprecedented Amount o Stimulus:The U.S. Government Has Already Injected 4.5x

What it Did in the Great Depression

PeaK

gdP

troUgh

gdP

length

(Months)

declIne

In

realgdP

MonetarY

FIscal

coMbIned

aUg-29 Mar-33 43 27.0% 3.4% 4.9% 8.3%

MaY-37 JUn-38 13 3.4 0.0 2.2 2.2

nov-48 oct-49 11 1.7 -2.2 5.5 3.3

JUl-53 MaY-54 10 2.7 0.0 -1.4 -1.4

aUg-57 aPr-58 8 3.2 0.0 3.2 3.2

aPr-60 Feb-61 10 1.0 0.7 1.0 1.7

dec-69 nov-70 11 0.2 0.3 2.4 2.7

nov-73 Mar-75 16 3.1 0.9 3.1 4.0

Jan-80 JUl-80 6 2.2 0.4 1.1 1.5

JUl-81 nov-82 16 2.6 0.3 3.5 2.8

JUl-90 Mar-91 8 1.3 1.0 1.8 2.8

Mar-01 nov-01 8 0.2 1.3 5.9 7.2

dec-07 JUn-09 18 5.1 18.3* 19.2* 37.5

d Juy 31, 2012. *eim i 2011 gdP f $15 i isu: F r, ci bu offi, g Ir o. KKr g M a ai.

exhIbIt 3

Central Banks are Osetting Austerity with LooseMonetary Policy

0

5

10

15

20

25

30

35

2006 2007 2008 2009 2010 2011 2012

Central Bank Balance Sheet % GDP

Fed BoE ECB BoJ

%

d Fuy 29, 2012. su: F r b, buuf emi ayi, eup c bk, bk f e, bkf Jp, swi ni bk, sii offi f eupcmmuii, UK offi f ni sii, ci offi f Jph.

We eel compelled to maintain

outsized exposure to an assetclass that can act as a hedge toany input-cost related erosion o

corporate protability.

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There is signicant potential oran upward revaluation o assetsthat can provide investors with

both yield and growth.

t w i pmpiuy ecb

ltro i pm ffi i mpi iiy2.

hw, i m pi: r- pi imi

fii imy . Exhibit 4 iu

i i y w i i -m

i i pi f mmii iui ,

u i . W iw i f -m

i py f k iquiiy, iui

pmi f iu w piy i fuu, quii

i, uy ii, -m fii f

piy iky (.., ltro).

exhIbIt 4

Strong Relationship Between Lower Real Interest Rates and Higher Commodity Prices

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0600

800

1,000

1,200

1,400

1,600

1,800

2,000

Apr-07

Oct-07

Apr-08

Oct-08

Apr-09

Oct-09

Apr-10

Oct-10

Apr-11

Oct-11

Gold Px (Left)

US/EZ/UK/JP Real Yield,% (Right, Inverted)

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.020

40

60

80

100

120

140

Apr-07

Oct-07

Apr-08

Oct-08

Apr-09

Oct-09

Apr-10

Oct-10

Apr-11

Oct-11

WTI Crude Px (Left)


-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0300

400

500

600

700

800

900

1,000

1,100

Apr-07

Oct-07

Apr-08

Oct-08

Apr-09

Oct-09

Apr-10

Oct-10

Apr-11

Oct-11

Dow Jones REIT TR Index (Left)


d Fuy 29, 2012. r yi mpi i gdP-wi f i Ui s (10y tIPs), Ui Kim (10yIfi-lik gi), gmy (bcp gmy Ifi lik, 5y+ Muii), Jp (bcp Jp Ifi lik, a Muii). su:bm, KKr g M & a ai yi.

ou u iw i pm mpy;

, w k mmi kpi i

w iquiiy i i f fuu. a u, w ik

u i up m y F i

p f my iu fi wi pii

i u , ifuu, i-pui

.

sme Iflati Will Eetally Be Reired t Brig Debt Le-

el Dw. J My Ky i y iui

p f ifi, m fi, y

u, imp p f w f i ii. Wi w i i 1919 i p p-W W I mi

pii, w ik i mm mi i y, i

p w i i w i imu f i -

m- i pp mu f ifi u

w u m pi. Impmi

2 ltro: l-m fii pi. c k i py imp i mpi i iiy. ecb ltro wimpi iiy i eup mk y 20% i i u imi-dm i b Mk oi, bnY M Fuy 2012.

ifi p i Ky fii

f w wu f mk , w i.

a i w, U.s. uy u 339%

gdP, w ju iy fm pk f 349% i M 2010 (Exhi

5). Pp m i i mi w m

m p p i. I i

1950, Ui s imy k m f

y im f gdP w (Exhibit 6). eup, , w

um , u i f wi f

fi uiy.

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exhIbIt 5

The Elephant In The Room: US Debt % o GDP

Households

Corporates

GSE

Government

Financials

Mar-32, 298%

Dec-11 339%

0%

50%

100%

150%

200%

250%

300%

350%

1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

US Debt % GDP

gdP = g dmi Pu; gse = gm spepi. su: bea, F r, M sy r t sii hiy f Ui s y b W.d u 4Q2011.

exhIbIt 6

Now, More Than Ever, It Takes Money To Make Money

1.4 1.51.7

2.93.1

5.6

1950's 1960's 1970's 1980's 1990's 2000's

US Economy: Incremental Dollars of Debt

Per Incremental Dollar of GDP

gdP = g dmi Pu. 2000 = 1999 2009. su: bea,F r, bm.

au w i m uiy mu

pi- i i eup Ui s u

uy iifiy i m, w if-

iy piy my uimy p ik u

u umu f . rmm m

i u i gdP i y w m:

(i) ui pimy upu y i ip pym f -i p, iui im; /

(ii) i mi i w f mi

gdP w. Exhibit 7w iu mu

ii pimy upu i Ui s i mi

y ( wiu qui, w ik eup f imi, if

, ). nmy, ii - im pi

piy i pu pi

iiy up i gdP3. Mwi,

3 s u p i Brave New World: The Yearning for Yield Across AssetClasses, dm 2011, i KKr.m.

Ui s iy f i u

u 18% f gdP, i w mii i

20% f gdP f p pi f im

exhIbIt 7

Challenging Outlook or U.S. Primary Budget DecitCould Eventually Lead to Infationary Policies

14%

15%

16%

17%

18%

19%

20%

21%

22%

23%

24%

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011

2014e

2017e

2020e

2023e

2026e

2029e

2032e

2035e

Revenues % GDP

Primary Spending % GDP

U.S. Federal Revenues and Primary (Noninterest) Spending

= im. ru im um f u % fgdP ii f 18%. Pimy (i.., i)pi im p cbo -m f pui Ju22, 2011. su: ci bu offi, KKr g M &a ai yi.

exhIbIt 8

Holding Interest Rates Below GDP Growth Would AidU.S. Debt Dynamics, But Could Rekindle Infation

19793.7%

1982-4.6%-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

1956

1960

1964

1968

1972

1976

1980

1984

1988

1992

1996

2000

2004

2008

U.S. Nominal GDP Growth, Surplus/(Deficit)Relative to Interest Rate* (3yr Rolling Average)

End of

Stagflation

Headed

Higher?

*W u U.s. 5-Y tuy Yi py f mfui . t muiy f U.s. ui mk u 60 m. su: buu f emi ayibm, KKr g M & a ai yi.

s, if ui iifi pimy upu i iky ui

m y mii i u

my i w mi f gdP w

f pi f im. Exhibit 8 w wu

up mu, U.s. gdP uipp i

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7/29/2019 KKR Insights 120408

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I May Itace We Are nw Gettig Paid t Wait a Real Aet

Are Icreaigly Tied it r Yield-ad-Grwth Theme. W

mk my im piy mpi i u

iw i my f y im i w f-

f y ppiiu i u f pi

wy. I w wy i wy.

F mp, y w wi um f i

pui im i uu u i

ii im f 48% upf, i ii ifi i

pi f pi ppii. t im mp wy m pui im u

(reIt), u w w iiy im m i pi-

puui i ii yi i i-

i pi f pi ppii. Py m imp

u, i ppuiy f m uy i pui

pi i pi, ui i w, u

p i ii m f i.

exhIbIt 15

Rapidly Aging Populations are Global in Nature

18.4

25.3

2050

26.6

2010

30.5

2030

37.1

2050

41.5

2010

12.3

2030

24.4

33.9

21.8

29.0 33.6

5

10

15

20

25

30

35

40

45

2000 2010 2020 2030 2040 2050

Percentage of Population Age 60+

US

Japan

China

Europe

d My 31, 2011. su: Ui ni W PpuiPp

exhIbIt 16

Retirees Have a Strong Appetite or Dividend Yield

1.5

2.8

Under 65 Over 65

Estimated Dividend Yield of Equity Portfolios, By

Age of Head of U.S. Household - 2007 (%)

d dm 6, 2011. dii yi u ui iiim p y Irs sii f Im diii quiyi p y F r suy f cum

Fi. ou im iu umpi uy f fpiy ui py m fm f ii. su: Irs,F r, KKr g M a ai im.

W iw u f pi ii mp f u m

iw -i y, i w i

ffi yi w iky u upw i

mi y u f mpi m i

ppui. t p y f upp

f ii pf uqu u. a

Exhibit 15w, m y mj p my i

i f ppi imp mpi ifi pi. t

ii i imp u, Exhibit 16 w, my i

piuy m by bm, pi miy i

yi i pfi y w .

t i ju puu yi i ii; y k yi

mi wi pi f w , if pi, ifi

. gi i f iu,

w ik i pi f upw ui f u

. aiiy, i ifi-pi ium

ik tIPs w i yi (mi i w

py f ifi pi y i), w i

yi mp f i y

ifuu im i f m mpi i y mk

(Exhibits 17 and 18).

We think that recent aggressive

moves by the Fed and other centralbankers will continue to beneftoverweight positions in such real

assets as real estate, inrastructure,and oil-producing assets.

7/29/2019 KKR Insights 120408

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exhIbIt 17

U.S. TIPS Yields Are at All Time Lows

-0.27

-1.42

-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

5.00

1997 2000 2003 2006 2009 2012

U.S. 10 Year TIPS Yield (%)

U.S. 5 Year TIPS Yield (%)

tIPs = tuy Ifi Pi suii. d M 12,2012. su: bm.

exhIbIt 18

I We Do Experience Infation, Government Bonds Maybe at Signicant Risks

-1.6-1.1 -1.1 -0.9

-0.3

0.81.2

2.6

6.4

-3

-2

-1

0

1

2

3

4

5

6

7

U.K.

U.S.

China

Euro

Germany

France

Japan

Italy

Brazil

Real 10 Year Yield Percentage

(Nominal 10 Yr Yield - CPI yy)

r yi u u mi yi miu u ifi.ti yi my pi f yi y fii wi my uj i (.., bi IoF Fii opi t f 6% i ium).

d Juy 31, 2012. su: bm.

Real Aet May Help Hedge Agait Riig Geplitical Tei.

am my wi f y m im,

w ik Mi e i m m iifi

p i i ik my. by ii-

iy uiy wu y a spi, ff

I u pm pi

fi (Exhibit 19), i wi u

i kyki y pi mi

pui qu p i I

i w i uppy (Exhibit 20).

exhIbIt 19

Geopolitical Tensions Enhance the Appeal o Real Asse

March 8, 2012

W Pw P I f tk

March 8, 2012

I I P a f nu Ip

March 9, 2012

Wii imp f I iki I

March 10, 2012

t iw fm t

su: Puii i, KKr g M a aitm.

hiy i u : I p uppy iupi,

u i pi f 62%, pi mi

u f k uppy. aiiy, i w

pk uppy pk f i pi i 91%,

uppy , i pi i (Exhibit 21).

liy w w i i pu f

upii u i m6. t liy im

f 1.8 mii f i-pui piy, pi

u 35%. bu uik liy, I i w i

iqui fu pu, wi pui f 3.6 mii p

ywi f liy. If w I 3.6 mii- uppy

ii p u u i pi u i

85% fm u , u $190 p . ti i u

, u i my pi wy i pi up f

f fi ii I i u impf i m wi pi i f pii

k u y imp i uppy.

6 su: ey Ifmi amiii Ii sii.

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exhIbIt 20

Iran Still Produces 3.6 Million Barrels o Oil Per Day

toP 10 crUde oIl and lIQUId FUels sUPPlY/ProdUctIon (MIllIons barrels Per daY)

1 UnIted states 10.5

2 rUssIa 10.3

3 saUdI arabIa 9.8

4 chIna 4.3

5 canada 3.8

6 Iran 3.6

7 MexIco 2.9

8 brazIl 2.8

9 IraQ 2.7

10 Uae 2.6

other 35.5

World 88.7

m/ = Mii b P dy. su: ey Ifmiamiii s-tm ey ouk M 2012.

exhIbIt 21

Geopolitical Events Tend to Lead to Oil Price Surges

Six Day War

Arab-Israeli War

& Arab Oil Embargo

Iranian Revolution /Iran-Iraq War

Iraqi Invasionof Kuwait

Venezuelan Strike

War in IraqHurricanesKatrina/Rita

Libya Civil War

Suez Crisis

Iran 2012??

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

0 2 4 6

RiseinWTICrudeOilPriceFromT

roughtoPeak(%)

Crude Oil Gross Peak Supply Loss (Millions of Barrels Per Day)

d Fuy 29, 2012. su: Ii ey ay,bm.

Emergig-Market Grwth Appear t Far Real AetCm-

mditie i Particlar. W f im

py ii umpi p f mi-mk

ppui. a i ppui ui ik ci i

uii pi i i p im,

m f u mmii , , i my iu

i. ci fwi: I 2010, U.s. i um

22.5 f i uy p p, mp ju 2.5

i ci; U.s. i um 907 kim f u

p p, mp 123 kim i ci7. M imp

ci ify i ii wi ppi f u

u wi mi uppy, if fm i

p f u imp, i my i. F

mp, ci pi u f imp f u

i iuu mmiipiuy i y

(Exhibit 22).

exhIbIt 22

China has Gone rom a Net Exporter to Importer androm Minor Consumer to Major Consumer in a Numbeo Categories

ExPoRTER

In 2005IMPoRTER

In 2011 unITs

road vehIcles 9516 -5503 Us$M

corn 3665 -3800 1000 Mt

sWIne Meat 454 -290 1000 Mt cWe

beverage andtobacco

395 -1412 Us$M

Wheat 268 -500 1000 Mt

cattle anIMals 4 -65 1000 heads

CHInA % WoRLD ConsuMPTIon

2000 2010

ceMent 35.7% 56.2%

PorK 46.9% 49.9%

coal 30.7% 48.2%

steel 15.1% 44.6%

lead 10.2% 44.0%

cotton 25.0% 40.2%

alUMInUM 13.4% 39.8%

coPPer 12.4% 38.3%

nIcKel 5.1% 37.2%

oIl 6.2% 10.4%

d dm 30, 2011. su: ci cum, Ui sdpm f aiuu, h. a f 2010. su: Usda, Usgs,W s aii, ci ni buu f sii, eIa, Iea,bP sii riw, W buu f M sii, bm,h.

7 su: bP sii riw, Un W Ppui Pp.

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exhIbIt 23

EM Consumption is Now Bigger than U.S. Consumption

8.89.3

9.810.0 9.9

10.2

8.0

9.2

11.0 11.0

12.1

13.3

6

7

8

9

10

11

12

13

14

2005 2006 2007 2008 2009 2010

Private Consumption

United States

Emerging Markets

US$ Trillion

emi mk iu mi pi mi fi y IMF, K, tiw, sip. d fm 2005-2010.su: IMF, KKr g M a ai r.

emi mk i i i: ti mi -umpi i w y f Ui s, u

i wi f (Exhibit 23). a ky y i w i

uii f ui ik ci Ii (Exhibit 24). t

ppi f ci ppui ii i ifi u

y 45%, Ii i , 30% (Exhibit 25). a

uii p i f y ppu u-

i, w p m f u u, iui i f

mmii, mii i y upw .

exhIbIt 24

Urbanization is a Strong Driver o Growth

China

US

Indonesia

Japan

Vietnam

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

-10% 0% 10% 20% 30%

ChangeinNominalGDPUS$2010

vs2000

Change in Urban Population % Total 2010 vs 2000

Urbanization Versus Growth

d dm 31, 2010. su: IMF, W bk.

exhIbIt 25

...And China and India Have A lot More to Go

28.8

30.1

34.0

44.9

53.7

61.7

66.8

69.5

69.6

72.8

73.8

77.8

77.8

80.6

81.9

86.5

0 20 40 60 80 100

Vietnam

India

Thailand

China

Indonesia

South Africa

Japan

Iran

Turkey

Russia

Germany

France

Mexico

Canada

Korea, Rep.

Brazil

2010 Urban Population % of Total

d dm 31, 2010. su: IMF, W bk

Bt We need t Be Midfl f the Rik, T. e m

pui im i ik w ii,

wi w i wi pii i wi

ii, w wy pif kp y

. Fi, u mk f m

We think theres an opportunity

or managers to buy older oilproduction operations at

attractive prices, resuscitate their

wells, and use the proceeds tocreate a sizeable dividend stream

or investors.

7/29/2019 KKR Insights 120408

13/16


fii quii i piuw

ui. F-fw y, yu wi fi k

iy w , wi up

474%, i i 269%, reIt i im 200%8.

t u mp, w my i i iiu

w iy i fi.

I ii, i f pi mi i ,

y- im i piu. t i iui

y pi-ii, p 12 y, pi -

piu i iui w ui f16.7% $151.0 iiup fm ju $23.6 ii i 1999w

fi, -ii im (-i -) y w

ui f 1.7% m pi9. a u,

i- - pi piu w ui 9.9% f

-ii im, up fm 2.0% i 1999. Wi

py i mw f i i ii iiy,

u f y pi piu (wi

10% f -ii piu) iiy i

pk ui p y, iui i 1944 1981 (Exhibit 26).

hw, p f mk piii, y i p-

p ui upi f i wu pp p pk

f s&P 500 (Exhibit 27).

exhIbIt 26

Energy Capital Expenditures is Now 10% o Total Non-Residential Expenditures

1933, 9.61944, 10.3

1981, 11.9

1999, 2.0

2008, 10.32011, 9.9

0

2

4

6

8

10

12

14

1929 1949 1969 1989 2009

Oil and Gas Related Investment

% Non -Residential Fixed Investment

oi g r iu Mii epi, sf, W Mii & oifi Miy. d dm 31, 2011. su:buu f emi ayi, h.

8 su: bm. d fm dm 31, 2000 dm 31, 2011.

9 su: buu f emi ayi, h. d dm 31, 2011.

exhIbIt 27

Energy as a Percentage o S&P 500 is Still Well BelowPast Peak Cycles

Nov-80,31%

Nov-99, 5.3%

Jun-08

16.2%

11.8%

Nov-8023.8%

Mar-866.6%

Feb-00,6.5%

Sep-02

13.4%12.1%

0%

5%

10%

15%

20%

25%

30%

35%

1975 1980 1985 1990 1995 2000 2005 2010

Energy as a % of U.S. Market Cap

Energy as a % of Europe Market Cap

d Juy 31, 2012. su: F, M sy r

ly, mmii - pi miyii, i i wi ii 60/40 (quiy/

) pfi i ui mi wu10.

ti i piuy u f gm s cmmiy I

wi my ppu muu fu uy u iy

pu . W fu im m

f wi ik f mmii , m im, p

ppuiy pfi fm pui mk- i

a pi iipi i i f i i , m

u fii i imi.

10 s eii 54 f Phase III: The Last Stage of a Bumpy Journey, o 20i KKr.m.

Beyond the instability and

uncertainty wrought by the ArabSpring, the stando over Irans

nuclear program has the potentiato escalate to a broader confict, iwhich case real assets could serv

as a hedge against skyrocketingenergy prices and relatedeconomic repercussions.

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Summary

I u iw, m kp i my mpi f i-

m i . W i iifi wi

pii i i iui , y pu-

i, ifuu, f mmii fi

ffi y.

dfiy pki, w mm i i iy

my piy pi fu fm pii i

mmi fm Mi e. W iw mmii, p-iy i , ffi i p pu,

f wi w p fi mu i u i.

o ffi i, w f im-pui mp

, y ifuu, pui-

im pi piuy ppi fu u i

y w- im.

thr ar, of our, rik o our ar poiion. to puru wha

w advoa, an invor nrally mu forfi om liquidiy in

ordr o ain xpour byond nri ommodiy wap. evn o,

i i a b w ar willin o mak in lih of h poor prforman

faur ha many wll-known indx provid. Ju onidr ha

bwn 2004 and 2011, on an abolu bai, h gscI Indx ha

rurnd ju 8.5% vru 147.5% for h undrlyin po ommodiy.

a ik i w my w py umi

u f my . ti ik i iuy

w ik y puk i - pfm, w

mj, u mpy. ou if i u i uyi

umpi i mi mk pp uu

u yii u.

Fiy, y fuu ii y k wwi i

i i my m pi. W u

mf miii wi pii i -

piy pi yi

w.

We suggest ocusing on

investments that hedge some othe downside risks o commoditie

and, at the same time, presentan opportunity to prot rom

production or market-share gains

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Important Inormation

t iw p i i pi p- iw f hy Mvy f K Ki r& c. l.P. ( wi i ffii, KKr) iy f iw f KKr if. tiw p f u iw f M. Mvy f f i M. Mvy KKruk i yu f y i iwp i. I ii, iw p iy f pii f y impfi KKr, my f i i pu KKr ff. KKr i f-fii my pii ( ) i

uii i i wi ifmi iw p i i pi.

this peseaio has bee pepaed solely foifomaioal puposes. the ifomaio oaiedheei is oly as ue as of he dae idiaed, admay be supeseded by subseque make ees ofo ohe easos. chas ad gaphs poided heeiae fo illusaie puposes oly. the ifomaio ihis peseaio has bee deeloped ieally ad/oobaied fom soues belieed o be eliable; howee,eihe KKr o M. Mvey guaaees he auay,adequay o ompleeess of suh ifomaio. noh-ig oaied heei osiues iesme, legal, axo ohe adie o is i o be elied o i makig a

iesme o ohe deisio.

t u im ywi ufu. hii mk i ii f u fuu mk i fuu pfm f y piu imwi my iff miy, u iup u. t i i i uj . t i u i wi i, u i my iifiy iff w . tipi u iw u pmmi iii f ff uy y uii p y im y.

t ifmi i i pi my i p-ji fwki m -i fuu , , f pii i i i, i yu f ii. t i u u wi i, my iifiy iff fm w . tifmi i i pi, iui mi fii mk , i umk ii, wi wi fuu my up y uqu mk f . Pfm f i ii i u u i wi ii i. tii iu y p, f

um u iim.

t im y m iu my uui f i pi ipifi im ji fii iuiP i f f uy my ff u, pi im f im y.

ni KKr M. Mvy um y uy , uk up fw ki m. npi wy, p impi, i m i y f f KKr, M. Mvy y

p uy mp fif ifmi i i i pi piiiy iiiy i p f y uifmi. by pi i pi, i kw i ui p fi m.

t MscI u ifmi i i um i ui ppy f MscI I. (MscI). MscI mkp impi wi pi iiiy w wi p MscI i i. t MscI my fu iiu u i f i y uii fii pu. ti pi pp, iw pu y MscI.

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kkr insights 120408

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