With all the geopolitical ‘noise’ swirling around these days, there is a growing propensity in the investment community to react quickly to near-term news flows, or even head to the sidelines until there is greater visibility. Our advice: stick to the plan. No doubt, overall portfolio risks are higher these days, but our work is telling us that there is still an attractive path forward for thoughtful investors who are willing to invest heavily behind big, large tail macro themes. Specifically, we want to own more cash-flowing assets linked to nominal GDP as part of our goal of frontloading as much yield as possible in the portfolio. This approach should help mitigate both concerns about late cycle behavior as well as aggressive central bank policies. We also favor owning more Opportunistic Credit and Special Situations, both strategies that have the flexibility to lean into dislocations. Finally, we feel compelled to embrace Complexity through a variety of investment disciplines, including Energy, Private Equity, Real Estate, and Infrastructure. If we are right about our worldview, then our existing asset allocation framework, which includes an investment process that we have developed over nearly two decades, should continue to serve us well amidst the recent spike in uncertainty. Said differently, if “it ain’t broke, don’t fix it.”

“If it ain’t broke, don’t fix it.”

Thomas Bert Lance
Director of the Office of Management and Budget, 1977

Introduction

While I am not one hundred percent sure if Thomas Bert Lance, President Jimmy Carter’s Director of the Office of Management and Budget was the original creator of the quip “if it ain’t broke, don’t fix it”, I do find his 1977 public statement about government intervention to be the most relevant – and somewhat ironic – source of this iconic phrase. Almost eerily given present circumstances, Lance went on to explain, “That’s the trouble with government: Fixing things that aren’t broken and not fixing things that are broken.” Well, with public deficits ballooning, corporate debt levels surging, and geopolitical tensions rising, one does have to wonder whether the United States – and for that matter, many of its peers – are doing enough to ‘fix’ those issues that now are plaguing both global GDP growth and capital markets stability.

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https://www.kkr.com/global-perspectives/publications/stick-to-the-plan