Feature – Geopolitics


GEOPOLITICS: DIVIDED WE STAND


Given the shifting geopolitical picture, there is a concern that we could be entering a world divided into blocs which are even starker than during the Cold War. The US, Europe, Japan and other developed countries will be on one side; Russia, China, India and the main oil producers would be on the other. This could dramatically reshape how things are done within the global system, not least the impact on how institutional investors invest.


The war in Ukraine has already led to most institutional inves- tors pulling their investments in Russia. The question is, could this be the beginning of a wider trend, where investors may have to stay within their own political bloc? “Possibly,” says, Richard Tomlinson, chief investment officer of Local Pensions Partnership Investments (LPPI). “It’s hard to say how the next decade will evolve and whether formal restric- tions will be expanded to limit where capital can be deployed.”


Having said that, Tomlinson identifies an investment trend that has emerged. “Risk appetites have certainly moved, gener- ally coming down and pushing into more familiar, ‘safer’ assets. This is likely to play out in reducing allocations to areas that are seen as less ‘friendly’ and where assets are not always governed by a clear and stable legal framework.” But he does have questions over the seriousness of the scenario. “It’s definitely a non-zero probability that we enter into a peril- ous Cold War period in the next few years and investors are essentially forced out of large regions of the world. I don’t see this as a base case though,” he says.


Geopolitical risk “Not necessarily staying within our ‘own bloc’,” says George Graham, director of South Yorkshire Pensions Authority (SYPA), addressing the same point of investors being restricted


Geopolitical risk is rising, but could it mean that the world for investors gets smaller? Andrew Holt reports.


22 | portfolio institutional | October 2022 | Issue 117


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