Geopolitical risk was high up on the worry list for institutional investors at the beginning of this year, and as the year winds down toward its close, once again it has raised its head to haunt the pros in a survey of pension professionals, consultants and asset managers.
But the source of concern may have changed.
According to a report in Investment & Pensions Europe, while the sources of worry may be a tad different, the fears themselves aren’t.
Elections to be held later in the year, in France (April/May), the Netherlands (March) and Germany (September), meant that survey respondent investors at the beginning of 2017 focused their attention there to see how voting would play out, lest political unrest raise its head.
But fears seemed to recede as populist, anti-immigration candidates were defeated, the report says, only to resurface in new guises.
However, a survey carried out by Allianz Global Investors during April and May also found that geopolitics was the number one concern for institutional investors, even more than fear of rising interest rates or an economic slowdown.
And now that the year is drawing to a close, that worry is on the increase.
The most recent survey, carried out by multiasset manager PineBridge Investments, found that asset managers ranked geopolitics as the biggest risk, but were also concerned about central bank policy (25 percent) and inflation (11 percent).
Among pension professionals and consultants, a fifth of respondents were more worried about inflation, while 16 percent ranked growth rates as the biggest risk and 7 percent were most concerned about central bank policy.
Steve Cook, co-head of emerging markets fixed income at PineBridge Investments, is quoted saying in the report, “The results surprised me, as I believe geopolitical risk is currently quite low by recent standards. Presumably, respondents are nervous with regard to Korea, Iran, and other potential flashpoints.” And, of course, there’s Brexit to worry about, as well as the recent failure of coalition talks in Germany, which is giving many institutional investors concern.
Of the 755 investors surveyed from across North America, Europe and Asia, 44 percent, the report said, identified geopolitics as representing a major risk to investment performance. More than 90 percent saw event risk as a threat, compared with three-quarters the year before.
Respondents were also asked about passive vs. active investments. A 40–60 percent passive to 40–60 percent active ratio was the most common balance (25 percent); that was followed by a 20–40 percent passive/60–80 percent active split (17 percent).
Just over a fifth (22 percent) of respondents to PineBridge’s survey expected global equities to perform best over the next 12 months, and 17 percent backed emerging market equities.
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