The default view on Europe has long been one of resignation. Modest growth. Structural drag. Coalition governments that move too slowly and traditional industries that move too late. For many allocators, that backdrop has been reason enough to keep Europe as an underweight, or a rounding error.
KKR's Henry McVey and his colleagues Aidan Corcoran, Bola Okunade, and Asim Ali returned from a July 2026 road trip across the region with a different read. The macro story, they readily concede, has not changed. What has changed is the nature and location of the opportunity within it.1
"Allocators waiting for a broad European renaissance to feel comfortable investing are asking the wrong question," McVey argues. "The better question, we think, is where structural changes within the region are creating differentiated earnings growth and durable cash flows."
That reframe is the intellectual core of the entire piece.
Dispersion Is the Story
McVey's team is explicit that Europe is not moving as one economy, and that treating it as though it does is where allocators go wrong. Structural tailwinds in defense, retirement and savings, health and wellness, experience-led consumption, and digitalization are producing revenue and earnings growth that, in the team's words, "increasingly resemble what we are seeing in stronger parts of the U.S. and Asia." Traditional engines — autos, energy-intensive manufacturing, parts of real estate — remain under sustained pressure with no near-term reversal expected.
This is KKR's "Divergence Conundrum" thesis applied specifically to European geography and sector selection. The dispersion is not a bug; it is the strategy.
Reinforcing the point: Corcoran's multi-year thesis that "the European periphery is poised to outperform the core this cycle" has exceeded even the team's own expectations. Spain and Italy have seen labor market improvements and accelerating fixed investment, while Germany has weakened on both counts. The data back it plainly.
Energy Resilience: A Structural Upgrade
One of the more concrete revisions embedded in the note concerns Europe's energy position. German wholesale power prices averaged approximately €465 per megawatt hour in the fourth quarter of 2022. As of the report, they are closer to €97. More diversified energy sourcing, expanded LNG infrastructure, greater storage capacity, and increased renewable generation have collectively improved the region's ability to absorb volatility. Europe, the team notes, "still has less flexibility than the U.S. to look through energy inflation, but the region is much better positioned than it was several years ago" — which is precisely why consensus recession calls from both central bankers and sell-side forecasters have consistently overshot.
Private Capital Steps Into the Gap
The third major observation is arguably the most consequential for portfolio construction over the next decade. Europe is transitioning from what the team describes as Capital Heavy to Capital Light, and two catalysts are now firmly in view. Corporates are under mounting pressure to simplify portfolios, improve returns on invested capital, and reposition for a higher-cost-of-capital environment. Simultaneously, governments face rising demands to finance defense, energy security, digital infrastructure, and supply chain resilience at a moment when public balance sheets are already stretched.
Both dynamics point toward a larger and more durable role for private equity, infrastructure, credit, insurance capital, and structured solutions. The signal from corporate conversations during the trip was clear: the direction is from complexity to simplicity, and private capital is the bridge.
Germany and the U.K.: Watch This Space
Germany has announced one of its most comprehensive reform packages in decades. The fiscal impulse has been slow to materialize, the team acknowledges plainly. But KKR's local teams report that investment is beginning to accelerate across semiconductors, AI infrastructure, and venture capital. If Germany executes, McVey believes "the benefits could ultimately extend well beyond its own borders, supporting investment, productivity, and capital formation across much of Europe."
In the U.K., the team awaits policy detail from newly appointed Prime Minister Andy Burnham, with particular interest in any reinvigoration of the private-sector capital expenditure and infrastructure agenda, given the binding constraint of fiscal limits.
Where the Portfolio Stands
KKR's Balance Sheet currently holds 29% of its assets in Europe. That is not an accident, and the team is not apologetic about the conviction it implies. European equities, proxied by the Euro Stoxx, have outperformed most global markets over the relevant period, and this does not even account for investors who drilled down into the right themes. "Variant perception matters in investing," McVey states. Beyond valuation, the team takes additional comfort that European earnings streams are increasingly diversified at a moment when global markets are becoming "correlated to a 'market of one'" — the combination of AI and financial services.
Europe, in this framing, is a genuine diversifier.
Five Key Takeaways for Advisors and Investors
- Stop allocating to Europe as a monolith. The divergence between periphery and core, and between structural growth sectors and legacy industries, is wide and widening. Thematic and geographic precision is now the only defensible approach.
- Energy risk is no longer what it was. The structural improvements in sourcing, infrastructure, and storage since 2022 have materially reduced downside sensitivity. Recession calls built on 2022-era energy assumptions are likely stale.
- Private markets are where the structural opportunity is thickest. Corporate simplification and constrained public balance sheets together create a multi-year runway for private equity, infrastructure, credit, and structured capital in Europe.
- Germany warrants a constructive watch. Reform momentum is real, if early. A successful execution could have multiplier effects well beyond Germany's own borders into productivity and capital formation across the continent.
- European earnings diversity is a portfolio construction advantage. At a time when global equities are increasingly correlated to AI and financial services, Europe's broad-based earnings profile across defense, energy, industrials, and consumer sectors is a structural diversification argument, not just a valuation one.
Footnote:
1 McVey, Henry H., Aidan T. Corcoran, Bola Okunade, and Asim Ali. "Thoughts from the Road: Europe." KKR Insights, KKR & Co. Inc., July 2026, www.kkr.com/insights/2026-europe-thoughts-from-the-road.
