View all newsletters
Receive our newsletter - data, insights and analysis delivered to you

Tech Valuations Need to “Adjust to New Reality” Warns KKR

"Technology, while still an incredibly powerful agent of change in the global economy, now faces more valuation and regulatory headwinds than in the past"

By CBR Staff Writer

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”.

Content from our partners
Scan and deliver
GenAI cybersecurity: "A super-human analyst, with a brain the size of a planet."
Cloud, AI, and cyber security – highlights from DTX Manchester

Read this: As Apple Sneezes; British Suppliers Catch Cold

Websites in our network
Select and enter your corporate email address Tech Monitor's research, insight and analysis examines the frontiers of digital transformation to help tech leaders navigate the future. Our Changelog newsletter delivers our best work to your inbox every week.
  • CIO
  • CTO
  • CISO
  • CSO
  • CFO
  • CDO
  • CEO
  • Architect Founder
  • MD
  • Director
  • Manager
  • Other
Visit our privacy policy for more information about our services, how Progressive Media Investments may use, process and share your personal data, including information on your rights in respect of your personal data and how you can unsubscribe from future marketing communications. Our services are intended for corporate subscribers and you warrant that the email address submitted is your corporate email address.