Handelsblatt exclusive

Waiting for the Fall

112642249 Johannes Huth KKR Carsten Dammann for HB1800
Winter is coming. Source: Carsten Dammann for Handelsblatt

Johannes Huth says he faces a “dilemma” because, simply put, things are going rather too well. It might seem like an odd thing to say, but in the financial world where bubbles and busts are common, it makes perfect sense.

“In my entire career here, I’ve never seen things running this smoothly for our 200 European engagements. That makes me cautious, because it can’t continue like this forever,” Mr. Huth, who heads the European business of KKR, told Handelsblatt.

With that, Mr. Huth added his voice to a growing chorus of investors worried that valuations for companies in Europe are running, as he says, “very high.” While demand remains extremely strong at the moment, he predicts these will fall rather than rise in the medium term. Asked if share price valuations will be lower in three or four years, he said: “I think so, yes.”

Germany's blue-chip DAX has been running from strength to strength in the past year, but so has corporate debt.

Mr. Huth’s voice carries weight. KKR is one of the world’s largest private investors, managing around $148 billion globally. Mr. Huth has been part of the company since 1999 and responsible for investments in Europe, the Middle East and Africa for the past 12 years. The firm has held stakes in German companies ranging from soccer club Hertha Berlin to the Bertelsmann Music Group, to media group Pro Sieben Sat1.

Germany’s blue-chip DAX has been running from strength to strength in the past year, but so has corporate debt. That’s partly because company investments, as well as company takeovers, have been fueled by a flood of cheap money and record low interest rates, courtesy of the European Central Bank. As that cheap money comes to an end, some fear that companies could collapse under their own borrowing weight.

Still, Mr. Huth doesn’t exactly predict a crash and says the system remains in far better shape than in 2007. Though cautious, he also insists KKR is ready for interest rates to start rising again. “On the contrary, I expect some good opportunities,” he said, noting that KKR managed good deals even back when US interest rates were as high as 15-16 percent.

 

Daniel Schäfer and Robert Landgraf of Handelsblatt’s Frankfurt office conducted the interview. Christopher Cermak adapted this story for Handelsblatt Global. To contact the author: dschaefer@handelsblatt.com, landgraf@handelsblatt.com and cermak@handelsblatt.com

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