In uncertain times, asset owners may not necessarily be looking for new allocation opportunities from investment managers, says Jahangir Aka, founder of Aka & Associates.
He says when asset owners experience geopolitical shocks, these institutional investors would first inspect their portfolios’ resilience. “They need to go and figure out what cracks there are in the foundation. They’re not worrying about rebuilding a new roof or redecorating right now.”
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Aka is the co-author of a report that argues while geopolitical shocks rarely lead to immediate changes in strategic asset allocation for large institutional investors, the pace of capital deployment does change.
He notes after a significant geopolitical shock, investors closely examine processes and behaviours to better understand current portfolio risks, instead of selling off in a panic that may not reflect market performance later.
“How are you going to get people to embed geopolitical risk into the first line of defense in asset allocation? Because most people think about asset class geography more than they’re thinking about the new world order.”
The report proposes that institutional investors consider geopolitical events and the investment impact through weekly, monthly and quarterly horizons lens. These timeframes reflect how some investment committees move from an initial portfolio assessment to a deeper consideration of economic transmission and investment confidence.
While recent actions by the U.S. government — including tariff policy and the conflict in Iran — are pushing investors to reconsider the U.S. marketplace, Aka doesn’t see a shift away from the country. Instead, he expects more asset owners to rebalance and normalize U.S. exposures, while rebalanced funds move toward core markets in the U.K. and Europe broadly.
“What normalization means is moving a factor of 15 per cent and that’s from clients ranging from $10 billion all the way up to about $600 billion. A 15 per cent move at 600 billion is meaningful money.”
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