As global markets grapple with the implications of a shifting world order, investors are reassessing traditional strategies. Canadian Prime Minister Mark Carney’s assertion of a ‘rupture, not a transition’ in the rules-based order has resonated, highlighting the need for adaptation in the face of President Trump’s policies that prioritise national and economic security, potentially disrupting established trade and capital allocation norms. Financial services giant Mercer’s Global Chief Investment Officer, Niall O’Sullivan, notes a sense of optimism tempered by the need to adjust to an environment where historical investment models are less reliable.
O’Sullivan identifies two key approaches investors are adopting. The first involves a ‘total portfolio approach,’ which emphasises understanding correlations between assets to manage risks across the entire investment portfolio. This contrasts with traditional siloed investments. The second approach focuses on the underlying asset’s performance and its exposure to a more transactional global environment, regardless of whether it’s a private or public equity or credit. Plato Investment Management, which employs long/short strategies, stress-tests its portfolio daily against various scenarios, from a Chinese property downturn to an AI bubble collapse. Plato Investment Management aims to construct models identifying overvalued and undervalued companies, not forecast macro outcomes.
David Allen, head of long/short strategies at Plato Investment Management explains that this approach allows them to focus on identifying undervalued and overvalued companies. Plato Investment Management’s Global Alpha strategy has delivered 38 per cent per annum over the past three years, with about half of its above-market returns coming from the short book. Both O’Sullivan and Allen advise investors to consider potential macro scenarios and how their holdings are exposed, emphasising the importance of understanding and hedging against risk in this evolving landscape.
