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Ian Bremmer, a keynote speaker at the recent marcus evans European Pensions & Investments Summit 2019, discusses how pension funds can plan for the future

Copyright © 2019 Marcus Evans. All rights reserved.

20 - 22 May 2019

Fairmont Le Montreux Palace, Montreux, Switzerland

“Pension funds need to pay more attention to politics on the macro side,” advises Ian Bremmer, President, Eurasia Group and GZERO Media. “This used to matter more for emerging market investors, but today, in an environment where geopolitics is coming apart, US and European investors must focus more on resilience and stability, and less on growth. We are leaving the US-led global order and institutional investors must closely follow politics. That means being less focused on alpha, when the industry is actually all about alpha,” he explains.

Bremmer was a keynote speaker at the recent marcus evans European Pensions & Investments Summit 2019.

What is your outlook for the next few years?

Economists believe there is reasonable growth right now, but it is likely to get softer over the next few years. As a political scientist, I would point out that the tail risks to the global economy are becoming much more challenging. There are many pieces at play, such as a weaker relationship between the US and Europe, and more instability, so reactions to crises will be more challenging. The US and China are more confrontational. The Chinese are capable of driving outcomes that are problematic for the US. We also see tail risks around Russian intervention in Western elections and a potential military confrontation with Iran.

In 25 years as a political scientist, I have never seen a geopolitical environment that has been, from a macro perspective, so hostile to economic outcomes as we are experiencing today.

What implications does this have on pension funds and institutional investors in Europe?

The return expectations from pension funds are pretty high. Most public funds remain with fixed benefits, so diversification is the answer. But that is going to get harder as correlations across assets and different countries have risen, and there is a push towards the renationalisation of economies and repatriation of supply chains.

Portfolio managers need to adjust their portfolios towards a situation of at least partial deglobalisation, with more home bias in their asset allocation. That is definitely true in the US as it has a more robust economy, but also true in Europe. This could reduce returns but also reduce the risk of volatility.

How can pension funds manage risk in this age of uncertainty?

There is a danger of making more risky investments. If they are still chasing returns when we are entering a geopolitical recession, that will bring on more risk. If I was managing a pension fund, I would pay more attention to geopolitics, caring more about stability than absolute growth. That is a hard message to deliver to pension funds. Otherwise, the whole system will become more fragile and subject to panic.

Are the markets resilient enough to cope with the next crisis?

The markets are increasingly volatile and much less resilient. With the last two major crises, 9/11 and the 2008 financial crisis, the US and most of the world responded. After 9/11, every American ally supported the war in Afghanistan. Even the Russians helped with the logistics of the supply chain and opened up bases in Central Asia. After 2008, both President Bush and President Obama worked hard to bail out Wall Street. All the US allies and China helped to ensure we avoided a Great Depression by creating stimulus packages, cooperating with each other and building consumer confidence.

I firmly believe that the next crisis, whatever it is, will show much less resilience in the world’s largest economies, the US, China and Europe. Instead of responding together, they will be pointing fingers and blaming people. That is a very dangerous game. That is what led to the Great Depression. Although the global economy is in a better shape today, the geopolitical environment is considerably more fractured. Pension funds need to plan accordingly.