KKR’s Kravis: Beware the Brexit black swans

Brexit will bring opportunities in Europe, but London will suffer, said the KKR founder.

As Britain negotiates its exit from the EU, there will be “more volatility than ever before”, according to Henry Kravis, co-chairman and co-CEO of US private equity giant KKR.

He said that there will be “black swans that seem to come up and bite when they’re least expected” and emphasised that “this is not a time for a lot of amateurs to be investing”.

Kravis, who was speaking at a Women’s Foundation event in Hong Kong on Wednesday, said that the UK’s decision to leave the EU will bring dislocation to the market, which the industry would see unfold over the next 12 to 24 months.

Kravis predicted a dim outlook for London as a financial capital, predicting that around 20 percent of financial services firms will move out of the city, “because they need that [AIFMD] passport to operate within the continent”. He added that Ireland and Luxembourg are two locations that will likely benefit from Brexit.

Earlier this week, the International Monetary Fund cut its 2016 growth forecast for the UK, from an earlier projection of 1.9 percent to 1.7 percent. The forecast for 2017 was downgraded more dramatically from 2.2 percent to 1.3 percent. Maury Obstfeld, the IMF’s chief economist, said that the UK’s decision to withdraw from the EU had added “downward pressure to the world economy at a time when growth has been slow”.

Kravis, however, said that while Brexit and a negative interest rate environment cast a pall over the private equity industry, there are still “plenty of opportunities in Europe”. And similarly in Asia, where KKR is taking advantage of rising income levels and corporate-carve-outs, Kravis added that non-investment grade credit and growth capital are two areas of significant current interest for KKR.

“You’ve got to be agile to figure out where to put your money,” Kravis said. “If you’re a flexible investor and have flexible capital, there are lots of ways to play that around the world.”