Asset Owners Rethink Portfolios Amid Rising Geopolitical and Economic Uncertainty

C12 Holding April 01, 2025

Global | March 2025 – Asset owners across the globe are reevaluating long-held portfolio strategies as the investment environment shifts from two decades of relative stability to one increasingly shaped by geopolitical tensions, economic fragmentation, and macro shocks.

With trade wars, rising protectionism, and systemic geopolitical risks replacing the era of free trade and easy money, major institutional investors are seeking more adaptive, dynamic strategies to safeguard returns and resilience.

A Shift from Growth to Defense

AustralianSuper, managing AUD $216 billion, is one of many institutions reassessing its traditionally risk-on 70/30 growth/defensive allocation. Yue Cao, Principal in the CIO office, stressed the need for greater downside protection and agile decision-making at the recent Top1000Funds.com Fiduciary Investors Symposium in Singapore.

“We don’t want to pretend we know everything,” Cao said. “We have to relentlessly build openness and agility into decision-making.”

The concern isn’t just volatility—it’s the increasing inability to rely on past playbooks for returns.

Investor Anxiety and Exposure Overlap

Railpen, the UK’s £42.2 billion pension fund, echoed similar concerns. With 70% of its equity risk linked to U.S. markets, John Greaves, Director of Fiduciary Management, questioned the portfolio’s readiness for future challenges.

“We’ve relied on the equity risk premium. But what if that no longer delivers the returns we need?”

Railpen is expanding into credit, real assets, and diversification strategies but notes that portfolio redesigns might need even deeper structural change.

Geopolitics No Longer Avoidable

Aaron Bennett, CIO of the $11 billion University Pension Plan Ontario, emphasized a growing realization: geopolitical risk is no longer idiosyncratic—it’s becoming systemic.

“I used to think you could just avoid a regime. Now, geopolitical risk is built into the system. That’s quite scary.”

Still, Bennett also sees opportunity:

“There’s galvanisation. Countries like Canada and even Germany are doing what was once politically impossible. That opens the door to structural shifts.”

The Rise of Total Portfolio Approaches (TPA)

The trend away from rigid strategic asset allocation (SAA) toward Total Portfolio Approaches (TPA) continues to accelerate.
At CalSTRS ($350 billion AUM), Senior Investment Director June Kim said the fund is centralizing its risk lens under “total fund management,” especially following the 2024 appointment of CIO Scott Chan.

“We’re reassessing portfolio resiliency across public and private assets. One focus is our defensive allocation—currently 10%—and whether it’s the right size given our growth exposure.”

Navigating a Brave New Investment World

Whether through TPA, dynamic allocation, or geopolitical scenario modeling, asset owners are preparing for a world where traditional assumptions no longer hold.

“The next decade will be more difficult—but also more exciting,” Cao concluded. “We’ll need more diverse approaches to navigate what’s coming.”