The more things change, the more they stay the same

Niall OSullivan , Global Solutions Chief Investment Officer

In a changing investment landscape, it’s easy to overlook the old ideas that have been proven to work in the past.

It feels almost cliché to point out the uncertainty and volatility facing investors in the global financial markets today. Each year brings profound questions that have the potential to fundamentally reshape how we view the investment environment.

An example: in a number of countries now there is debate as to what role elected representatives should play in monetary policy, a role that until now was largely thought of as squarely the reserve of independent, unelected institutions like central banks.

Without commenting on the virtue of such a position, it seems that central banks may find themselves under a series of pressures that in the past have led to an increase in inflation.

Much of what we think of as the ‘mos majorum’, the accepted norms that economies and markets operate under, are ultimately up for debate. In such an environment, extreme conviction seems unwise.

One such example of this conviction can be seen in the AI market. In recent weeks a number of commentators have drawn parallels between the current AI investment environment and the internet bubble of the early noughties. While I wouldn’t feel comfortable claiming AI is a bubble, some areas feel priced to perfection.

Diversification is an old solution to new problems

But for all these new questions, we believe the answer remains an old one: asset owners must make sure their portfolios are diversified against all the risks that exist in the market. Even as those risks shift and change.

The need for diversification grows every day that markets stay at their current levels, and every day that credit spreads get tighter. But as risks change, multiple forms of diversification are needed.

We are seeing clients act in response. According to the results of our latest Large Asset Owner Barometer, interest in hedge funds and other diversifying alternatives is rising sharply.  But using these forms of diversification requires access and expertise.

Diversification is not just about mitigating risk, it’s also about being around to capitalize on new opportunities as they arise. This means being able to diversify within asset classes to catch emerging themes such as the rapid expansion of datacenters as a category within infrastructure.

It’s a partnership world

My view – and our proposed solution – is that it’s now a partnership world. Breadth and scale are what matters – the best way to thrive in the current environment is to have a wide range of available actions, and the ability to use scale where needed.

Even among the largest asset owners, very few try to do this alone. Our Large Asset Owner Barometer found that, as of 31st December 2024, just 5% of leading institutional investors manage all of their assets in-house. The vast majority delegate some, or even all, of their assets to external managers that can access the full range of assets and capabilities.

Over the past year we have been leaning further into this thesis and building on our existing breadth and scale. We believe the acquisitions of Cardano and Secor mark important additions to our capabilities and, ultimately, enable us to help clients in ways that wouldn’t previously have been possible.

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