The asset management industry has lost asset allocation skills after three decades of not using them.
This is according to Hermes chief executive Saker Nusseibeh, who said asset managers just had to bet on the economy growing or not growing over the past 30 years.
This is while they could sit back and enjoy a synchronised world, with only one currency to really worry about.
‘We have as an industry lost our skill in asset allocation, which was a skill in choosing between widely diverging asset classes and currencies in a sometimes desynchronised economic environment while cognisant of major political risks.’
This loss of a core functions is worrying for the chief executive, who said ‘geopolitial risk’ has come to refer to minor regional disruptions that might impact the oil price.
‘However, there was a time when it was used to explain how non-economic factors could shape the pathways of the economies, capital markets and currencies of even developed markets.’
He added that geopolitical risk in its original meaning is now returning in the shape far-right parties being elected in Europe, the Putin effect, China’s growing power and recent elections in Mexico.
‘I worry the asset management business no longer has the skill-set in house to truly understand the political machinations of various governments and states or how they might interact within the context of a multi speed global economy and work it all out,’ he said.
Nusseibeh said investors are not sufficiently prepared for things to go really wrong on the markets. He said long-term investors should be preparing to be buying when things go down.
He said there are still attractive long-term trends on the market, such as advance of AI, alternative energy and emerging markets demographics. ‘But you must be ready to jump – and the time to prepare is now.'