Navigating the Convergence of Market and Political Risk

The boundary between macroeconomics and geopolitics has effectively disappeared. Inflation, sanctions, cyber threats, and energy volatility no longer sit in separate risk silos; they now interact systemically, creating a feedback loop linking political actions, market dynamics, and investor behaviour. For asset managers, this convergence has transformed the nature of risk and the expectations of clients and regulators alike.

A continuous “permacrisis”

The daily torrent of war reports, tariff news, energy shocks, and supply chain disruption gives the impression of constant crisis. Social media amplifies every signal, adding to the noise that shapes investor sentiment. Yet despite this backdrop, markets have proven remarkably resilient. Equities continue to climb a wall of worry, and Broadridge data shows continued flows into infrastructure, private markets, and defence assets. All evidence that investors are reallocating, not retreating.

This resilience masks a deeper reality: the biggest danger is not volatility, but a failure to keep up with how risk itself is changing. Macro and geopolitics have merged into a single narrative. Asset managers must, in turn, integrate this broader understanding of risk into portfolio construction, operational resilience, and engagement with clients.

Linking capital to policy

Government policy is increasingly a driver of capital allocation. Net zero taxonomies, defence spending commitments, pension reforms, and efforts to expand retail access to private markets are directing flows with almost as much power as yield or valuation metrics.

This blurring of public and private purpose opens opportunities but also creates exposure to political reversals. Aligning with policy priorities can enhance credibility, but fiduciary duty must remain the anchor for asset managers. Managers must walk the line between the appeal of policy tailwinds and the obligation to protect long-term investor interests.

In a world of constant news flow, managers have increased obligation to ensure that fiduciary responsibility to investment goals remains the compass and to clearly and consistently communicate that perspective to investors. Broadridge data shows that, despite heightened volatility, investors continue to allocate to long-duration growth assets. This underscores the importance of discipline, education, and transparency in maintaining investor confidence.

Balancing ESG and security priorities

Nowhere is the convergence of politics and markets more visible than in the interplay between climate goals and defence spending. While ESG inflows have slowed, assets in security and defence funds have accelerated from negligible levels to tens of billions of euros in under two years. Governments from Germany to Japan have announced multi-year defence commitments that transform this sector from a cyclical to a structural growth theme.

This shift presents an ESG credibility challenge. Climate remains the systemic risk acknowledged by regulators worldwide; temporarily sidelining it in favour of security priorities risks undermining the foundations of sustainable finance. The task for managers is evolutionary, not substitutional: integrate new themes such as resilience, supply chains, and defence (including cyber) within ESG frameworks without losing sight of the climate imperative.

The importance of transparency and resilience

In this environment, transparency is not optional. Investors may differ on whether defence or other politically sensitive sectors belong in a sustainable portfolio, but they will not forgive ambiguity. Broadridge tracks both fund launches and proxy voting patterns, and both datasets reveal widening regional divergences in investor sentiment. This highlights the need for data-driven communication and a consistent narrative.

Operational, digital, and reputational resilience is now the true measure of adaptability. Cyber security, operational strength, and clear governance must be integrated across the value chain to prevent small weaknesses from becoming systemic risks and in turn to safeguard investor confidence.

Staying focused amid the noise

Politics may set the headlines, but fundamentals continue to drive markets. The managers that succeed will be those that respond to changing risk dynamics with agility while holding fast to enduring principles. Fiduciary duty must remain the compass; clarity and communication, the instruments of trust.

In a world where the only constant is disruption, resilience and transparency are not just regulatory expectations, they are the foundations of long-term performance and credibility.