Tech valuations need to adjust to “the new reality of a more disciplined approach to this asset class”, global investment Goliath KKR warned in a 2019 outlook published today, saying it expects greater regulatory oversight, tougher earnings comparisons and ongoing trade friction to dampen valuations.

The note comes after years of red hot technology markets, with startups snapped up at high valuations and eye-watering IPOs. British companies have been real beneficiaries of this environment, with tech firm sales, IPOs and mergers in 2018 setting a record for the country of $40 billion – the highest in Europe.

2019 Tech Valuations: Headwinds Proliferate

KKR manages multiple alternative asset classes, including private equity, energy, infrastructure, real estate and credit. It has $195 billion of assets under management and has backed leading security innovators on both sides of the Atlantic, including Ping Identity and Forgerock in the US, and Darktrace in Europe.

Read this: “A Bumper Year”: UK Tech Exits Topped $40 Billion in 2018

In a Macro Outlook 2019 [pdf] published today, the firm said it expected “high-end technology to be at the epicenter of any ongoing trade friction” and aggregate tech investments – “which have been the key driver of returns this cycle so far” – to no longer be the key leadership sector from a total return perspective.

Henry McVey, KKR’s Macro & Asset Allocation head wrote: “Despite the recent carnage, we retain our underweight to private growth investing until valuations better adjust to the new reality of a more disciplined approach to this asset class. Meanwhile, on the public side of the sector, we expect regulatory oversight, tougher earnings comparisons, and excess dry powder to lower returns on a go-forward basis”.

See also: “I’m Terribly Sorry, but Would You Be Interested in Funding My Humble Little British Startup?”

KKR pointed to four major influences that require a different approach to asset allocation in 2019: 1) a notable shift from monetary policy to fiscal policy; 2) technology headwinds; 3) tightening liquidity conditions and 4) the rise of geopolitical uncertainty, “which warrants a higher risk premium than in the past.”

As we have seen with ZTE, Huawei, and – to some degree – Apple, KKR’s analysts wrote, “we also expect high-end technology to be at the epicenter of any ongoing trade friction”.

Read this: As Apple Sneezes; British Suppliers Catch Cold