KKR's General David Petraeus on finding (and declining) opportunities in a volatile geopolitical climate

11 years ago, just as General David H. Petraeus (US Army, Ret.) was leaving his post as Director of the US Central Intelligence Agency, the global consensus was that "economics were largely driving geopolitics". Today, that story is very different. A slew of tariffs on Chinese-manufactured electric vehicles recently imposed by the US and European Union are, in Petraeus' view, indicative of a wider shift.

But that does not mean that the opportunity window for investments is closing - far from it, actually. What it does mean is that vetting deals for geopolitical risk is becoming a more crucial part of the process.

Recently, General David H. Petraeus, a Partner at KKR and Chairman of the KKR Global Institute, participated in a fireside chat with KKR Australia's Nicholas Hyde, to share his insights on how Australian investors should navigate today’s increasingly complex market environment. This wire features some key discussion highlights of the day. 

A taste of Petraeus' background

For those who may not be familiar with General Petraeus, he is a highly decorated military veteran with over 37 years of service in the US Army. Throughout his distinguished career, he has been commended at every level, including six consecutive commands as a general officer, including in Iraq and Afghanistan. 

However, General Petraeus is probably best known to Australian investors for his tenure as the Director of the CIA from 2011 to 2012. Since departing from the CIA, he has taken on a strategic advisory role as Partner at the global investment firm KKR and Chairman of the KKR Global Institute, a research and analytics unit within the firm that he established in 2013. In this capacity, General Petraeus supports KKR’s investment teams and portfolio companies as they evaluate new opportunities, with a focus on geopolitical dynamics, and also helps portfolio companies as they encounter challenges around the world.

His full biography can be read here.

What's changed since 2013

General Petraeus began the conversation by sharing his views on how the geopolitical environment has evolved over the last 11 years. He said, "During that time, the world has transformed dramatically. It's really been [a] seismic change."

"It used to be, 11 years ago, that you could describe the world as one of benign globalisation in which the barriers to trade, investment, capital flows, data flows, all of them were being reduced, they were going down. It was an era in which economics largely drove geopolitics," General Petraeus said.

Now, "we are in an era of renewed great power rivalries,” in which those barriers have been going up considerably and geopolitics is driving economics.”

How that's affecting deal sourcing to investments

General Petraeus acknowledges that deal-sourcing and closing have been affected by a wider geopolitical shift - and while voting down a deal on geopolitical grounds is rare, it's also not unprecedented.

But despite these challenges, KKR’s portfolio companies leverage the KKR Global Institute as a resource for navigating the new geopolitical environment. Crucially, this is not a sector-exclusive or region-exclusive situation - the rise of geopolitics as a black or grey swan phenomenon is affecting investors everywhere.

"We work with companies as they think through this new geopolitical context," he said. "Geopolitics is not just a consideration in emerging markets anymore. It’s everywhere."

Petraeus: West has ‘mutual dependency’ with China

Petraeus likens today's geopolitical tensions to the circus, where the West is keeping a lot of plates spinning all at once. Climate change, state-sponsored cybercrime, Russia's invasion of Ukraine, the Israel-Hamas War, the increased competition with China, and North Korea's nuclear ambitions are just some of the key watch points.

But the biggest topic, and the one which took up most of the conversation time, is the US-China relationship.

General Petraeus said that the US needs to "derisk but not decouple from China".

"This is a relationship that has been described as ‘severe competition’ by US National Security Advisor Jake Sullivan, and it is getting more fractious."

General Petraeus argues that the US needs to "derisk but not decouple from China" and also noted that there will likely be continuity in policy no matter who wins in November.

"You do not want to be needlessly provocative and you do want to be open to opportunities to improve the situation if they actually present themselves," he said.

"The West is hugely dependent on China for a whole variety of commodities and processed strategic minerals. But China is also hugely dependent on the United States when it comes to feeding their people and feeding their livestock. So there's a lot of mutual dependency."

KKR has a diversified business across every major market in Asia today. China is a key piece of KKR’s strategy in Asia, but it is by no means everything that the firm is doing in Asia. KKR has been investing in Asia since 2005 and has built extensive on-the-ground experience investing across all of the region’s major markets. Petraeus is particularly optimistic about the growing opportunities in Japan, India, Australia, and Southeast Asia, especially as many global companies move to a “China Plus One” model. 

Beyond China

For the ongoing crisis in Gaza, the impact on markets will come down to the flow of crude oil, says Petraeus, who thinks the risk of disruption of that is low.

"[Iran] is not going to disrupt freedom of navigation in the Gulf, as it is allowed to export 1.5 million barrels of oil and distillates, and as long as that freedom of navigation is preserved, and I think it will be, there's not a very significant effect on the global economy," he added. One positive opportunity, in Petraeus’ view, is the rise of India as a genuine contender to the world's largest economies.

"We're just very bullish on various aspects of India but it's not all resolved. There are still a number of reforms that they need [to enact]," he added.

And finally...

Throughout his discussion, General Petraeus referred to numerous meetings with key political leaders around the world, and also took the opportunity to compliment Australia's military personnel for their longstanding partnership over the decades.

"We had no better partner than the diggers - the Australian soldiers, sailors, airmen, and marines who were part of the large coalitions initially in Iraq and then very prominently in Afghanistan when I was privileged to keep command in each of those wars," General Petraeus mentioned. “They were truly incomparable and punched massively above Australia’s weight class. I remain very grateful to each and every one of them – and also to those in Australia’s intelligence and diplomatic communities with whom I was privileged to serve.”