FOMO, the acronym for fear of missing out, describes the anxiety an individual experiences when believing others are capturing profits in which they do not share. Originating within social media, the term is widely used today across finance to define a specific behavior: purchasing an asset following an aggressive rally, driven not by conviction regarding its intrinsic value, but by the fear of missing the train.
The underlying mechanics of this dynamic stem from behavioral finance, the discipline examining how emotional impulses and cognitive biases distort economic decision-making. FOMO combines several of these biases. Herd behavior prompts market participants to mirror the actions of the majority. Loss aversion, conceptualized by Daniel Kahneman and Amos Tversky (2 cognitive psychologists whose research reshaped psychology, economics, and our understanding of human cognition), establishes that the psychological pain of a financial loss is significantly greater than the satisfaction derived from an equivalent gain. Recency bias fosters the assumption that market trends observed over recent months will persist indefinitely. Compounding this is social comparison: observing a peer or an influencer display outsized returns amplifies the emotional pressure to deploy capital.
This dynamic is neither confined to a single geographic market nor limited to a specific asset class. It was visible during the technology bubble of the late 1990s, across the residential real estate market preceding the 2008 financial crisis, throughout the cryptocurrency run-up, and during the 2021 meme stock phenomenon. It also manifests in more understated environments, such as when capital flows concentrate into trending funds or themes after they have already recorded substantial advances. The sequence follows a familiar cycle: asset prices appreciate, media coverage expands, retail and institutional inflows accelerate, and that incremental demand fuels further gains until the cycle eventually reverses.
The costs of impulse execution
The primary risk centers on allocating near cyclical peaks, which compresses future return potential and exposes portfolios to severe drawdowns. Furthermore, market participants entering positions without a defined time horizon frequently capitulate during the initial market correction, converting unrealized paper drawdowns into permanent capital impairment. Additional consequences include extreme portfolio concentration in a single asset and the complete abandonment of the underlying investment mandate.
Mitigating the impulse begins with recognizing it. Several portfolio management practices help neutralize its impact:
Formulating a written investment policy statement detailing return objectives, time horizon, risk tolerance, and target asset allocation.
Diversifying across asset classes, sectors, and geographic jurisdictions to reduce portfolio dependency on a single speculative thesis.
Rebalancing portfolios systematically: this mechanism enforces trimming outperforming assets and reallocating toward lagging segments, operating as the mechanical antithesis of FOMO.
Dollar-cost averaging via recurring contributions, removing reliance on single-point market timing.
Introducing a deliberate cooling-off period prior to trade execution, asking: would this asset be attractive had it not just rallied?
FOMO is not an affliction exclusive to retail investors; it impacts seasoned market professionals and institutional allocators alike. The institutional edge lies in establishing an execution process that insulates decision-making from emotional volatility. In markets where an apparently unmissable trend is perpetually emerging, the disciplined investor is not the one attempting to catch every momentum wave, but the one who adheres strictly to their strategic plan and can rationally justify every capital allocation.
The U.S. currency faces gradual erosion as a reserve asset and an expanding search for alternatives in international trade. However, its dominance across foreign exchange markets, financing, and cross-border transactions remains practically intact. The world seeks to lessen its reliance on the dollar, yet has not found a currency capable of replacing it.
The hegemony of the U.S. dollar is navigating one of its most complex periods in recent decades. The deterioration of U.S. public finances, uncertainty surrounding its economic policy, geopolitical tensions, and the deployment of its financial architecture as an instrument of foreign pressure have reignited the debate over the prudence of maintaining such elevated dependency on the currency.
The discussion is no longer confined to foreign exchange markets; it now involves central banks, sovereign governments, institutional allocators, and major corporations seeking to diversify assets and mitigate exposures tied to the U.S. currency. However, there is a fundamental distinction between questioning its leadership and possessing the capacity to replace it.
The data
The data demonstrates an ongoing diversification process, though it remains far from constituting a definitive displacement. According to the International Monetary Fund (IMF), the dollar’s share of allocated foreign exchange reserves reported by central banks declined to 56.70% during Q2 2026, compared to 57.18% in the previous quarter. The euro, meanwhile, expanded its share to 20.60%, while the Chinese renminbi stood at 2.11%. Aggregate global foreign exchange reserves reached $13.22T. The historical comparison is even more striking: at the turn of the century, the U.S. currency accounted for roughly 71% of global reserves. The long-term trajectory points toward reduced concentration, though not necessarily toward the substitution of the dollar by another dominant currency.
Several factors drive this dynamic. One primary driver is the growing concern among certain governments regarding the exposure of their sovereign reserves to foreign policy decisions originating in Washington. The freezing of Russian assets following the invasion of Ukraine highlighted that international reserve holdings are not entirely insulated from geopolitical conflict.
For select countries, diversification also means mitigating vulnerabilities to financial sanctions, restrictions on payment network access, and potential disruptions to trade corridors. Added to this is the pursuit of greater monetary autonomy, particularly among emerging markets seeking to broaden the use of local currencies in bilateral trade. Nevertheless, interpreting every trade settlement executed in yuan, euros, or local currencies as an unequivocal signal of dollar abandonment would be inaccurate, as many transactions simply serve to lower currency conversion costs rather than execute a deliberate strategy to supplant the prevailing monetary order.
The paradox
The paradox becomes apparent when observing the mechanics of global capital markets. While the dollar’s share of sovereign reserves experiences a gradual decline, its presence in foreign exchange turnover remains overwhelming. The Bank for International Settlements (BIS) Triennial Central Bank Survey for April 2025 recorded an average daily foreign exchange trading volume of $9.6T.
The U.S. currency was on one side of 89% of all transactions, far exceeding the euro at 28.9% and the Japanese yen at 16.8%. Because every foreign exchange transaction involves 2 currencies, these individual shares sum to 200%. This data reveals that, even when a transaction does not directly involve the United States, the dollar continues to serve as an intermediary vehicle currency facilitating exchanges between diverse currency pairs. Its preeminence, therefore, does not rely exclusively on the domestic economic output of the United States, but on the entrenched financial plumbing engineered around it.
Another foundational element underpinning its resilience is the sheer depth and liquidity of U.S. capital markets. U.S. Treasuries, setting aside debates concerning fiscal deficits and debt expansion, continue to constitute one of the largest pools of tradable assets on the planet. For a central bank or reserve manager, identifying an alternative currency is insufficient; the allocator requires deep secondary markets, predictable legal frameworks, unconstrained capital mobility, and the capacity to liquidate massive positions into cash without triggering severe price dislocations.
The euro commands a substantial share, but lacks a single, integrated sovereign debt market comparable in scale and liquidity to U.S. Treasuries. China has accelerated the internationalization of the renminbi, yet capital controls and managed exchange-rate mechanisms continue to constrain its viability as a fully convertible reserve asset. Diversification does not equate to the presence of a viable substitute.
International demand for U.S. financial assets provides another dimension of this dynamic. Department of the Treasury data indicates that foreign investors conducted net purchases of long-term U.S. securities totaling $300.7B during August 2026.
Of that sum, $257.8B originated from private investors and $42.9B from foreign official institutions. While these figures do not imply that every allocated dollar represents a structural bet on the currency itself, they demonstrate that the U.S. market continues to attract foreign capital on a massive scale. The currency may navigate cyclical depreciations and structural scrutiny regarding its long-term stability, yet sustained institutional demand for dollar-denominated assets provides fundamental support for its global standing.
On de-dollarization
Within this landscape, de-dollarization should be characterized as a gradual diversification process rather than an imminent rupture. China has expanded bilateral trade settlement agreements in renminbi, the BRICS bloc has explored frameworks to lower reliance on the U.S. banking system, and central banks have scaled sovereign gold allocations.
However, these initiatives have yet to establish an alternative monetary architecture matching the scale, liquidity, and intermediation capacity of the dollar. Even gold, despite its resurgence as a reserve asset, cannot independently perform the functions of a global transactional currency required to finance trade, clear contracts, extend credit, and mobilize capital at institutional scale. The baseline scenario is not the collapse of the dollar, but an increasingly multi-currency system with expanded operational space for secondary currencies.
For emerging markets, and Latin America in particular, this transition entails implications that extend beyond theoretical debates over future monetary hegemony. A weaker dollar can shift cross-border capital flows, external borrowing conditions, commodity valuations, and regional export competitiveness.
Yet dollar depreciation does not inherently guarantee more accommodative financial conditions: if driven by a deterioration in institutional credibility, wider risk premia, or fiscal strain, it could trigger heightened volatility across equity and fixed-income markets. For economies such as Mexico, structurally linked to the United States through trade and corporate financing, dollar dynamics will remain decisive for capital allocation decisions, central bank policy, and institutional hedging strategies.
The underlying paradox is that the dollar does not require an appreciating exchange rate to preserve its dominance. Its standing is fortified by high switching costs, network effects, market liquidity, and the absence of a competitor possessing its structural characteristics.
The United States may face institutional and fiscal vulnerabilities, and global allocators may continue to broaden reserve and transactional exposures. Yet until an alternative economy offers a capital market of comparable depth, openness, unrestricted convertibility, and institutional trust, the dollar will remain anchored at the core of the international financial architecture. Its throne faces growing scrutiny, but it remains without a visible successor.
The Standard & Poor’s 500 Index stood, in the week of the midterm elections, at the lower support of the consolidation band that has contained its gains since August. As already happened in 2025, after the commercial launch of DeepSeek at the beginning of the year, Liberation Day, or the fears about circular financing in November, doubts around artificial intelligence were resurfacing, and with them, the fear of an imminent bursting of the bubble. The first reading of the election result was positive: on Wednesday, the United States stock market recorded its best session since the summer, and the hyperscalers rebounded strongly, decoupling from semiconductors and from the industrial subsectors tied to data center construction, which were more heavily penalized by the forcefulness of the Democratic victory.
The euphoria lasted one day. On Thursday, the market focused on what the Democratic majority could mean for the pace and cost of rolling out artificial intelligence infrastructure. The S&P 500 fell 4.4%, its worst session since April 2025, while the Nasdaq Composite lost 5.5% and entered a correction. The Philadelphia Semiconductor Index plunged 12%, the VIX rose nearly 70%, to 28 points, and all eleven sectors of the S&P 500 closed in negative territory. Added to the regulatory fear were some weak results in the semiconductor sector. The most visible catalyst was Texas, one of the country’s major data center hubs: the governor-elect, Gina Hinojosa, has pledged to freeze all new approvals until the legislature passes specific regulation in 2027, extending the pause that Abbott had already decreed in August.
In our judgment, the move is more of a forced liquidation than a break in the thesis. Hedge funds had been cutting their gross exposure since June, by more than 8%, the largest deleveraging since at least 2017, according to Morgan Stanley, and when leverage is withdrawn, you sell what you can, not what you want. That many artificial intelligence beneficiaries already show declines of more than 20% from their highs seems disproportionate to us, given fundamentals that, for now, continue to improve. Nor do we anticipate a slowdown in artificial intelligence development or a national moratorium on data centers, which would put at risk the technological race with China and productivity growth. The news flow may get worse before it gets better, and deleveraging episodes are rarely resolved in a single session. But history is on our side: since 1950, the S&P 500 has traded higher twelve months after every midterm election. As we explain below, neither the bubble thesis nor the regulatory impact on computing supply justifies, in our judgment, the magnitude of the adjustment.
Bubble? Artificial Intelligence Adoption Still Has A Long Way To Go
Although the artificial intelligence investment cycle is advancing (the free cash flow of the hyperscalers is already in negative territory in most cases) and, unlike in 2025, the Federal Reserve is in the middle of a mini-cycle of rate hikes, interest rates have pressured multiples, which are much more reasonable than in 1999. Moreover, the recent correction has conveyed skepticism and caution toward a disruptive technology, not optimism, which dismantles, at least for the moment, the bubble hypothesis.
Investment as a percentage of gross domestic product may be frightening in its magnitude (it has already surpassed the peak reached in the internet era), but the adoption of the technology still has a long way to go. To confirm this, we look at data from Ramp AI (which only counts those who use paid services, but focuses on a universe of just 85,000 companies and whose sample is biased toward technology and growing companies) and from the United States Census Bureau (BTOS), a much broader survey that incorporates up to 1.2 million companies, but only asks about use, which may include free services. Ramp serves us to analyze the pace of growth and which laboratories gain or lose market share. The BTOS is the best measure of how far the use of artificial intelligence tools has penetrated the business fabric, although it is published with a delay and is biased toward small and medium-sized businesses.
Nevertheless, the conclusion coincides in both cases: in September, the Ramp index shows a penetration of 55.9%, while the BTOS survey ranges between 17% and 20% (among companies with more than 250 employees it reaches 37%). Outside the realm of surveys, which always present biases, Anthropic’s S-1 that we referred to last week showed that Fortune 500 companies devote less than 0.1% of their total spending to Claude.
Since 2025, and also according to Ramp data, spending per employee on artificial intelligence applications has multiplied by six, although it has only really begun to accelerate in the last ten months. The effect of these tools on productivity, as well as their reflection in the profits of the large hyperscalers, is evident in this chart.
Demand For Computing Power Continues To Exceed Supply
As we explained last week, there is clear evidence that demand for computing power continues to strengthen and, for the moment, exceeds supply. The hourly rental price of Nvidia’s H100 (Hopper generation), with one-year contracts, has risen 60% in the last year, and that of the Blackwell has also become more expensive.
If a server with extremely expensive accelerators quickly stops being profitable for training frontier models or for offering truly competitive inference prices, the return on invested capital of that investment is compromised. In addition, the release cadence of increasingly powerful chips has increased. The other side of the coin is that, to stay at the forefront of this race and gain market share with more competitive prices in artificial intelligence services without sacrificing margin, you have to invest in cutting-edge technology. An Nvidia GB300 NVL72 rack processes about 6,000 tokens per second on each of the 72 graphics processing units it incorporates, compared to about 90 with the previous generation (Hopper); that is, about 65 times more. The new Vera Rubin, which will begin shipping in volume shortly, multiplies the capacity of the GB300 by between 2.5 and 3.5 times (about 15,000 tokens per second), although, adjusted for power consumption per watt, the improvement would be 1.3 to 1.6 times.
In addition, token usage is growing beyond the demand provided by the large artificial intelligence laboratories (Anthropic and OpenAI). Recent data show us that demand from artificial intelligence agents has already surpassed that of traditional users and has grown 14 times since February. Along the same lines, the use of mixture-of-experts models also increases the token load, and open models, which are cheaper, are being used more and more. The falling cost of tokens stimulates more intensive use of the models and drives up demand for computing power.
It is feasible that, as supply bottlenecks are cleared, the rental price of graphics processing units will fall more in line with their depreciation rate and with the launch of more powerful units. But we are not there yet. In the meantime, there is computing capacity contracted at spot prices per megawatt that will have to be revised upward in 2027-2028 (the contracts of AWS, Google, or Azure with Anthropic do not publish price terms, but CoreWeave’s 10-K states that the weighted average duration of its contracts is about 5 years).
The “Blue Wave” And Data Centers
The holding of the legislative elections in the United States removes one unknown to be resolved ahead of the close of 2026, and the strength of the “Blue Wave” exceeded the expectations of specialists and bookmakers. The speed at which Trump has consumed his political capital in his second term is surprising and has a lot to do with not having addressed the main concern of those who voted for him in 2024: inflation and the domestic economy. On the contrary, Trump embarked on a capricious and poorly explained war and on the imposition of high tariffs even on allied nations aligned with American commercial interests. It is an almost unprecedented defeat, in which Trump has lost control of Republican “fortress states,” such as North Carolina (the first time since 2008 that it has elected a Democrat to the Senate), Texas, or Florida (where Republicans have lost seats despite redrawing the electoral districts to their convenience). This result, a priori, and because of what it implies for the 2028 presidential elections (with new Democratic governors in states such as Ohio or Iowa, historic “swing states” that had passed into Republican control), reduces the risk of a new attack on Iran and shifts the focus of geopolitics toward the Federal Reserve and the sustainability of the earnings-per-share growth cycle.
With results that are still provisional (at the time of writing, the results in Arizona, Oregon, Michigan, or Minnesota were still to be known), and as we see in the chart above, the electoral upheaval will also put the focus on the evolution of data centers under development and in the planning phase, as well as on possible delays affecting the supply of computing power. Opposition to the construction of data centers was seen in both red and blue states, with Republicans such as Abbott, who had already paralyzed new approvals in Texas in August. Nevertheless, the Democratic sweep sharpens the situation.
Texas (Democrat, Hinojosa), Georgia (Democrat, Bottoms), Ohio (Democrat, Acton), and Iowa (Democrat, Sand), in addition to Virginia (which passed into Democratic hands in 2025) and Pennsylvania, concentrate the bulk of the gigawatts planned and under construction: 189.5 gigawatts of the roughly 346 gigawatts projected.
In Pennsylvania (Shapiro), the developer must build, bring in, or buy its own power generation. In Ohio (Acton), the moratorium would be conditional: only data centers that pay for their energy and water and demonstrate that they do not raise their neighbors’ bills would be approved. In Virginia (Spanberger), a tax of 0.011 dollars per kilowatt-hour has been introduced, about 77 million dollars per year per gigawatt, with a load factor of 80%, while maintaining the sales tax exemption for equipment. Georgia (Bottoms) is the harshest case: it calls for a statewide pause and a review of the 2.5 billion dollars in tax incentives.
Nevertheless, the impact in 2026-2027 will be very low: in the four main states there are 25.9 gigawatts already under construction that would not be affected by a regulatory change, and Trump has already promised to become “Mr. Veto,” so he will possibly block any Democratic attempt at the federal level to increase the tax burden or tighten regulation on the construction of data centers.
If the White House passes into Democratic hands in 2028, the uncertainty will affect the 108.9 gigawatts planned in those states. In a base scenario, with subjective probabilities for each of them, around 10-15 gigawatts could be delayed. The effect would not be very significant: adjustments in state legislation would mean obstacles (unions, environmental requirements, and restrictions on electricity consumption), but not bans on construction.
The final idea: the electoral outcome increases the value of already installed computing capacity and should also sustain the hourly rental cost of graphics processing units and accelerators. Additionally, it could be the perfect excuse to slow the pace of investment. The hyperscalers are clear beneficiaries.
The financial services sector has entered a decisive phase of its technological transformation. According to Capgemini’s World Cloud Report for Financial Services 2027, based on a large-scale survey of 1,100 executives in 14 international markets, what began as one-off automation projects is rapidly evolving into ecosystems of interconnected artificial intelligence agents capable of coordinating workflows, making decisions, and executing autonomous actions across the business. However, the report warns that the distance between ambition and real execution is deep: the proliferation of fragmented initiatives, legacy operating models, and siloed governance keep the vast majority of institutions trapped in pilot phases.
The Leap From Isolated Pilots To Multi-Agent Orchestration
The recent trajectory shows a dizzying but uneven pace of adoption. Whereas in 2025, 80% of institutions began designing or testing individual agents for specific efficiency tasks, 59% now say they are testing or deploying multi-agent systems in production within limited functions. However, only 10% of firms have achieved enterprise-wide multi-agent orchestration capable of sustaining fully autonomous business execution.
This transition goes far beyond marginal productivity gains. Agent ecosystems are beginning to reshape high-volume operational flows in banking and insurance, such as customer service, policy underwriting, claims management, and compliance operations. At the same time, user interaction is moving toward an intermediated model: 76% of senior executives expect artificial intelligence agents to become a key component of customer relationships within three years. Despite this momentum, Capgemini’s assessment through its maturity index, which measures dimensions such as deployment, trust, cloud authority, security, and operational discipline, finds that only an exclusive 5% of financial sector institutions currently have comprehensive enterprise maturity.
Three Strategic Priorities To Lead In The Agentic Era
The study, produced by the Capgemini Research Institute and presented by Kartik Ramakrishnan, chief executive officer of the firm’s Financial Services Strategic Business Unit, stresses that market leaders will not be defined by how many bots they deploy, but by how they orchestrate their autonomous execution, govern it at scale, and turn it into tangible results. To close the operational gap, the report identifies three key priorities:
It is vitally important to move beyond isolated use cases and integrate agents that span operations, the technology infrastructure, and customer journeys. In this regard, 44% of the executives surveyed already prioritize building “agentic meshes” to link scattered pilots with corporate execution. Likewise, firms are recalibrating their sourcing strategy: building in-house what generates strategic differentiation, buying standard solutions for generic needs, and partnering in ecosystems where shared data provides differential value.
The cloud is shifting from a simple provider of computing capacity to becoming the execution authority for autonomous systems, acting as the data spine, control plane, and governance fabric. When selecting cloud providers, regulatory requirements, data residency, and compliance certifications lead executives’ priorities (50%), followed by security and identity management (47%) and auditability or traceability at scale (39%). Moreover, sovereignty goes beyond the mere location of data: it covers direct control over who authorizes and executes agents’ decisions, a critical aspect given that 62% of firms acknowledge that their identity and access management infrastructure lacks the resilience required to operate continuously in autonomous environments.
As agentic workflows expand, pressure mounts to justify investments with quantifiable business returns. The report reveals a severe lack of financial discipline: 48% of companies cannot consistently demonstrate the return on investment of their agentic artificial intelligence initiatives, while 51% lack mature valuation filters (value gates) to authorize continued funding of projects. In response, the most advanced organizations are directly linking artificial intelligence spending and token consumption to concrete operational goals, establishing strict economic governance and shared accountability in the profit and loss statement.
The growing demand for liquidity in private capital, the investment needs in energy and digital infrastructure, and the expansion of alternative financing to European companies are shaping a new stage for private markets. Franklin Templeton identifies opportunities in these three areas, in an environment in which specialization, diversification, and manager selection will be increasingly decisive.
Private markets have entered a new phase of maturity. Their global assets have quadrupled since 2015, reaching approximately 20 trillion dollars in 2025, and could reach 27 trillion by 2030. This expansion reflects the growing role of private capital in financing the economy and its importance in building diversified portfolios.
In this context, Franklin Templeton, whose private markets platform manages nearly 300 billion dollars and has more than 1,200 professionals in 23 countries, identifies three areas with special potential: the private capital secondary market, infrastructure, and direct financing to European small and medium-sized companies.
These outlooks were discussed during the second Franklin Templeton Private Markets meeting, held in Madrid on October 21, with specialists from its various investment platforms.
The firm highlights that, as the market grows and becomes more complex, diversification, knowledge of the sources of return, and the ability to select managers and assets are fundamental to capturing opportunities and managing long-term risks.
Secondaries: Liquidity And Value Creation In A Market That Demands Greater Selection
The growth of private capital and the lengthening of the periods companies remain outside the stock market are driving the development of the secondary market, which allows investors to obtain liquidity by selling their stakes in private funds.
Since 1996, the number of publicly listed companies in the United States has fallen by almost 50%, while the overall business fabric has continued to grow. At the same time, the average period that companies remain in private hands before going public has doubled, going from approximately six years in 2000 to twelve in 2025. Globally, nearly 80% of companies with revenues above 100 million dollars are private.
This evolution highlights that a significant part of business value creation takes place outside listed markets.
Lexington Partners, a Franklin Templeton platform specialized in secondaries, highlights the opportunities offered by acquiring stakes in private capital funds with already established portfolios and a greater degree of maturity. Compared to primary investments, these transactions allow a better understanding of the underlying assets, access to immediate diversification by company, sector, geography, manager, and years of investment (vintages), and help to mitigate the J-curve, a characteristic of private capital.
The growing need for liquidity among investors and the greater complexity of transactions are expanding the universe of opportunities. However, they also raise the importance of selection: the ability to analyze the underlying companies, properly value the portfolios, and structure the transactions is essential to identify attractive investments and manage risks.
Infrastructure: Artificial Intelligence, Energy Security, And Geopolitics Drive Investment
The transformation of energy systems, the deployment of artificial intelligence, and the reorganization of supply chains are driving a new investment cycle in infrastructure.
Franklin Templeton identifies three major structural drivers under its EDGE vision: energy, digitalization, and growth of developing economies (by its English initials). Their convergence is generating long-term capital needs that can hardly be covered exclusively through public financing.
The expansion of artificial intelligence is tightening the link between digital and energy infrastructure. The growth of computing capacity requires new investments in data centers, power grids, energy storage, and connectivity.
DigitalBridge, a manager specialized in digital infrastructure and strategic partner of Franklin Templeton, identifies three interdependent components to meet this demand: computing, connectivity, and energy supply. The availability of reliable electricity, access to grids, and the ability to develop new facilities quickly are becoming critical factors for the viability of projects.
For its part, Copenhagen Infrastructure Partners, a manager specialized in energy infrastructure and strategic partner of Franklin Templeton, identifies in electrification, rising energy demand, and security of supply some of the main investment drivers of the coming decades.
Added to these trends is a geopolitical environment that is accelerating the search for strategic autonomy, the diversification of supply chains, and the development of infrastructure close to production and consumption centers.
In this context, opportunities are not limited to the acquisition of operating assets. Newly built projects (greenfield) can offer additional value creation potential compared to infrastructure already in operation (brownfield), in exchange for assuming higher development, construction, and execution risks.
For Franklin Templeton, the main convictions in this segment are concentrated in the energy transition, digital infrastructure, and sustainable infrastructure, areas backed by long-term structural investment needs.
Private Credit: Opportunities In The Lower Segment Of The European Mid-Market
Private credit continues to consolidate itself as an alternative to bank financing in Europe. Within this market, Franklin Templeton identifies especially attractive opportunities in the lower mid-market segment, characterized by less relative competition than large leveraged financing transactions.
This segment, which comprises transactions with debt volumes between 15 and 100 million euros, generates more than 700 transactions per year, according to estimates by Apera Asset Management, a Franklin platform specialized in European direct financing.
The smaller presence of large credit funds and the limitations of bank financing in certain transactions create opportunities for managers with direct origination capacity, knowledge of the local business fabric, and experience in structuring loans.
Apera highlights the appeal of transactions with moderate leverage levels, usually between 2.5 and 4 times, loan-to-value ratios of 40%-50%, and between two and four financial protection clauses (covenants).
These structures can offer greater contractual protection mechanisms and the ability to intervene early in the event of a deterioration in the borrower’s financial situation, although they do not eliminate credit, default, or capital loss risks.
In an increasingly competitive market, discipline in lending will be as important as the ability to identify opportunities. Company selection, portfolio diversification, the strength of guarantees, and recurring origination of transactions will be fundamental factors in generating risk-adjusted returns throughout the economic cycle.
Specialization And Manager Selection Will Define The Next Stage
The maturity of private markets is expanding the investment universe, but it is also raising the demands of analysis and selection. The convergence between digitalization, energy, corporate financing, and liquidity needs opens new opportunities, while increasing the complexity of strategies.
One of the main features of these markets is the high dispersion of returns between managers, which can be considerably greater than in traditional markets. Therefore, identifying an attractive structural trend does not by itself guarantee good results: the experience of the teams, their origination capacity, valuation discipline, and risk management can determine substantial differences in returns.
For Franklin Templeton, the next stage will be defined not only by access to growth opportunities, but by the ability to select the right managers, assets, and structures to turn that potential into sustainable long-term value.
Diversification, specialization, and a long-term investment vision will therefore be the fundamental pillars for navigating this new phase of private markets.
Photo courtesyDoc Horn is Global Head of Total Return Equities at Pictet AM and a hedge fund expert.
Doc Horn is Global Head of Total Return Equities at Pictet AM and a hedge fund expert. He joined the firm 1 decade ago and has since witnessed the evolution of this vehicle class. Specifically, he has overseen specialized UCITS teams across this asset class in Geneva, London, Tokyo, Singapore, and Hong Kong. We sat down with him to discuss the popularity and role of hedge funds in investor portfolios, and how private banks and wealth clients are increasingly demanding them.
To what extent is the hedge fund industry attracting capital not to outperform the market, but rather to serve as the true cushion or yield replacement that bonds no longer deliver during periods of stress?
Investors seek to diversify their portfolios following substantial gains in recent years to enhance capital preservation. However, fixed income has proven less reliable as an uncorrelated diversifier during stress scenarios. Bond markets have disappointed since 2022. Consequently, the traditional 60% equity / 40% fixed income portfolio is increasingly questioned for its vulnerability to macroeconomic shocks amid concentrated equity markets and elevated valuations.
In the current market backdrop, what role can hedge funds play in investor portfolios, and what value can they deliver?
Hedge funds are attracting renewed interest as investors seek returns less dependent on market timing and greater diversification to enhance risk-return profiles. In this regard, select managers can identify winners and losers, capture relative-value opportunities, and take tactical exposure to opportunistic setups. Instead of competing with passive investments, they can complement them by introducing differentiated return streams and more targeted risk exposures.
Across which strategies do you believe hedge funds can deliver the most value, and where do you identify the primary opportunities?
Different hedge fund strategies tend to perform well across distinct market environments. For instance, in January and February, fundamental-driven and event-driven strategies delivered particularly strong results. In April, macroeconomic headlines served as the primary catalyst, creating opportunities for macro and relative-value strategies. Meanwhile, directional long/short strategies can replace portions of directional equity exposure. For their part, certain hedge funds can provide an attractive yield component paired with the downside protection many allocators require. Others deliver amplified exposure by concentrating leverage across a smaller set of positions.
In our view, the greatest opportunities stem from combining these distinct return sources in the right manner. That is why our hedge fund strategies are deliberately diversified, maintaining low cross-asset correlations. Some are fundamentally driven with low turnover and multi-year investment horizons, while others trade actively, exploiting short-term market dislocations. This breadth establishes a resilient framework for navigating a wide array of macroeconomic regimes.
What do you view as the primary hurdle preventing investors from allocating to hedge funds?
Hedge funds do not constitute a homogeneous asset class, and investor sophistication varies significantly; thus, one key challenge is ensuring allocators understand the specific mechanics of the vehicles they select. Concerns typically center on predictability, transparency, and portfolio role within broad asset allocations. Investors must grasp how distinct strategies behave across varying market regimes.
Equity long/short, global macro, relative value, event-driven, and multi-strategy setups can exhibit fundamentally different return drivers, liquidity profiles, maximum drawdown dynamics, and correlations, making it critical for allocators to understand these nuances. Generating alpha remains essential, but the conversion of gross alpha into consistent net returns has become equally critical, requiring full transparency around fees, operational expenses, and net performance. Liquidity also remains a decisive prerequisite for investor comfort.
As a portfolio manager, what do you view as the critical factors for executing a successful hedge fund strategy?
The cornerstone of success is delivering differentiated, consistent alpha with minimal correlation to broad market risk premia alongside robust downside mitigation, complemented by the agility to tactically monetize dislocations as they emerge. Strong governance frameworks, incentive alignment, operational liquidity, fee transparency, and disciplined risk management are equally indispensable. For our UCITS hedge fund platform, underlying assets must remain liquid so investors retain seamless capital access, while empowering managers to capture global opportunities—frequently through allocations that are structurally less concentrated in the U.S. and tilted toward emerging markets.
How does Pictet’s hedge fund franchise compete to attract elite traders and portfolio managers while maintaining the cost discipline and infrastructure stability demanded by a traditional private bank?
Gross alpha efficiency is becoming increasingly critical, as operational overhead and expenses can create a substantial performance drag. Investors must not look solely at net return figures, but also analyze the gross return from which those gains derive and determine how much capital is retained after costs. The hedge fund industry remains fiercely competitive. The structural edge lies in organizational architecture and the capacity to attract, develop, and retain elite talent. In that regard, top-tier hedge funds increasingly resemble elite sports teams, where superior long-term performance hinges as much on talent and culture as on process. Firms must present clear, differentiated value propositions to win the war for talent, encompassing institutional culture, robust risk frameworks, and long-term career progression. This is why we have engineered an environment where exceptional managers can generate repeatable outcomes. Culture, incentive alignment, and managerial succession planning carry equal weight to research and analytical budgets. A portfolio manager joining our platform may ultimately earn the mandate to launch a standalone vehicle. Initially, their strategy is integrated within one of our multi-strategy portfolios, allowing us to evaluate operational viability. Through this framework, we have successfully launched multiple standalone funds across our 20-year history.
The beginning of November left November 5 marked in red following the slump in semiconductor and artificial intelligence (AI) infrastructure stocks. The trading session was defined by a severe wave of global risk aversion, driven by accelerating sell-offs across semiconductor companies after the confirmation of a Democratic sweep across both houses of the U.S. Congress.
This episode across the technology sector caused market sentiment to deteriorate further, driven by questions surrounding the sustainability of the AI capital expenditure cycle. The environment shifted into a distinct risk-off posture, favoring safe-haven assets and reinforcing expectations of moderating global growth. However, rather than an outright mass exit of capital from equities, the session reflected an aggressive rotation toward defensive sectors. The S&P 500 dropped 4.4%, the Nasdaq Composite fell 5.5%, and the Nasdaq 100 declined 6.4%, marking its worst single session since March 2020.
The downturn represented an acute risk-off movement led by AI and technology. The Nasdaq fell 5.5% and the Philadelphia Semiconductor Index dropped roughly 12%, reversing the initial post-election rally. This transferred directly to Asia, where Taiwan and South Korea were hit hard at the open given their extensive exposure to semiconductors, memory, and the broader AI supply chain. The primary concern for markets is how the U.S. midterm election results could impact the pace of AI investment.
The core question is whether AI demand will continue growing at an explosive rate. Unease had already begun mounting amid perceptions that figures and valuations previously circulated around Anthropic appeared stretched. The trigger for the sell-off was the U.S. midterm election outcome. However, the magnitude of the declines was driven in large part by leveraged market participants—including hedge funds, specialized investment pods, and retail accounts, alongside institutions operating under restrictive risk mandates. When panic sets in, multiple participants attempt to exit the market simultaneously.
The impact of the midterm elections
Democratic gains increased scrutiny regarding data center development at a time when investors were already questioning the financing structures and return profiles underpinning the scale of AI capital expenditures. This explains why the reaction concentrated in the technology sector and why U.S. Treasury yields fell, as investors priced in potentially slower AI deployment and softer macroeconomic growth.
Concerns regarding aggressive regulatory oversight of artificial intelligence and data center facilities triggered a broad-based exit from tech, overshadowing solid U.S. labor and macroeconomic data—with initial jobless claims falling to 189,000 and productivity rising 3.6%.
Across mega-cap corporations, regulatory and operational uncertainty yielded mixed dynamics. Apple attracted substantial institutional demand, receiving over $31B in book orders for an investment-grade bond offering seeking to raise up to $7B. Meanwhile, Google reaffirmed its infrastructure roadmap by announcing a $17B investment in its first data center in Wyoming. In contrast, Microsoft increased operational oversight of its cloud infrastructure vendors (such as Nebius, IREN, and Nscale) amid mounting construction delays and cost overruns at its data centers in Texas. Additionally, supply chain concerns intensified following anticipated regulatory hurdles for new builds across Texas, Georgia, and Ohio, paired with downward target price revisions for ARM Holdings.
Market volatility following the Democratic victory highlighted renewed apprehension regarding capital expenditure throughout the AI wave. The initial post-midterm rebound had been robust, reflecting the defensive posture investors maintained ahead of a potentially contested vote. While clarity initially provided relief, it proved short-lived: overnight, fears that a unified Democratic Congress could curtail the pace of AI deployment sparked a worldwide tech rout. The Nasdaq fell 5.5%, Asian semiconductor markets followed suit, and both sovereign debt and gold absorbed safe-haven inflows. The market’s initial post-election verdict proved far from settled.
The investment cycle remains intact
This drawdown reflects a repositioning rather than a structural deterioration of the AI investment cycle. Broader equity indices retain upside potential over a 6-12 month horizon. Given that further volatility is likely, focus should center on managing concentration risk, rebalancing outsized technology exposure, and building a resilient core multi-asset allocation.
The AI investment cycle remains structurally sound, corporate earnings growth continues to prove resilient, and a supportive global cyclical backdrop should underpin equities. While markets may absorb a period of digestion following the election outcome, underlying fundamentals do not warrant a protracted downturn.
The AI cycle has not yet reached its peak. Demand remains solid, and recent corporate earnings indicate that compute capacity continues to be constrained. Allocators are weighing the pace of AI growth against the cost of capital, turning increasingly selective by rewarding businesses that fund investments out of operating cash flows.
The next phase of the cycle will increasingly favor higher-quality companies with balance-sheet access to capital, while opportunities expand toward end-market adopters of AI rather than pure capex infrastructure providers. Maintaining dialed-back exposures, evaluating markets from a technical standpoint, and selectively identifying entry points into higher-quality firms remain the operational priorities.
Photo courtesyGuy Henriques, President of the Client Group for Europe and Asia-Pacific.
A survey conducted among 1,200 high-net-worth and ultra-high-net-worth individuals reveals a deep conviction gap in the midst of the Great Wealth Transfer. According to the findings, 91% of heirs felt pressured into making their first significant financial decision within the first 3 months of receiving their inheritance, even though only 18% reported feeling highly comfortable operating within that initial timeframe. This operational haste, driven by immediate legal and administrative mandates, results in only 19% of beneficiaries reporting full satisfaction with the management of their inherited legacy, highlighting a critical need for the wealth management industry to shift from basic portfolio structuring toward comprehensive strategic guidance.
Receiving an inheritance frequently entails immediate financial, tax, and administrative decisions before beneficiaries have clearly established their long-term objectives. Findings show that this compressed timeline can result in missed allocations, leaving many wishing they had deployed a greater share of their capital into productive market assets. Trusted advisory relationships play a central role in mitigating this complexity, providing the framework needed to make deliberate decisions and establish structured, long-term investment strategies across generations.
The two-speed trap
The findings reveal a structural mismatch defining the wealth transfer process: a two-speed operational dynamic. On one hand, an accelerated clock is activated by tax obligations, probate mandates, and urgent liquidity reorganizations. On the other, a much slower clock operates—one required for the beneficiary to assess capital allocation, define core objectives, and align portfolios with personal and family values.
Counterintuitively, managing a larger balance does not yield additional time for deliberation. Nearly 90% of individuals inheriting between $25M and $100M were required to execute critical financial decisions within a few weeks, compared to under 10% of those receiving between $100,000 and $500,000. The operational complexity of ultra-high-net-worth estates—comprising private operating business equity, real estate holdings, private market vehicles, and illiquid holdings—compresses decision timelines due to governance requirements, asset valuations, and estate tax liabilities.
This initial urgency creates long-term frictions. Up to 60% of respondents acknowledge they wish they had allocated a higher percentage of their inherited capital into capital markets (equities, fixed income, mutual funds, or ETFs) and retirement vehicles—a sentiment rising to 67% among women. Furthermore, while 61% cite founding or expanding a business as their primary wealth ambition, only 1 in 5 heirs reports successfully realizing their long-term financial and personal goals.
Analysis paralysis and the execution gap in financial advice
The execution deficit observed among heirs does not stem from an absence of advice, but rather from information overload. Nearly half of respondents (49%) identify an excess of options and conflicting recommendations as their primary hurdle, triggering analysis paralysis.
As a direct result, only 48% of investors fully implement the recommendations delivered by their financial advisors. This stands in contrast to the 79% implementation rate documented among clients who successfully met their long-term milestones. The differentiating variable lies in relationship equity: 78% of respondents highlight that a pre-existing, established relationship with the advisor was the decisive factor during the transfer phase, with 88% placing high value on advisors who provide structural and emotional reassurance alongside technical analysis.
Female investors: cross-validation and expanded trust ecosystems
Female beneficiaries are leading a structural shift in wealth decision-making. Women surveyed demonstrate a significantly higher propensity to require that portfolios reflect their personal values (56% versus 47% of men) and maintain more conservative, diversified allocations, prioritizing mutual funds, indexed instruments, and ETFs over speculative assets.
Rather than relying on an isolated source of advice, female heirs establish multi-layered validation models. They supplement professional wealth advisory inputs by leveraging personal networks (78% consult friends or family, compared to 68% of men) and digital tools (73% versus 62%). Technological integration is particularly pronounced: 69% of women deploy artificial intelligence applications to model scenarios and backtest investment alternatives (versus 56% of men), a figure that climbs to 87% among those with inheritances below $500,000.
Generation Z: financial pragmatism and shifting advisory loyalties
The participation of Generation Z is disrupting traditional retention patterns within private wealth management. Fully 54% of younger heirs chose to replace their family’s historical financial advisor after receiving their inheritance, seeking professionals offering greater generational affinity, aligned values, and direct digital interaction channels. In fact, 96% of this cohort demands advanced technology platforms and real-time portfolio monitoring from wealth management firms.
Generation Z’s portfolio allocation reflects distinct commercial pragmatism: 24% invest purely based on nominal financial returns, nearly 5 times the 5% rate observed among Baby Boomers. Simultaneously, they lead in allocating to alternative digital assets: 33% have directed a portion of their inheritance toward cryptocurrencies and digital assets, compared to 12% among older demographics.
Marcella Sivilotti, Global Wealth Chief Operating Officer at Macquarie Asset Management.
Macquarie Asset Management (MAM) has announced the appointment of Marcella Sivilotti as Global Wealth Chief Operating Officer, reinforcing the leadership of its expanding global wealth management business.Sivilotti’s arrival follows the recent expansion of MAM’s Global Wealth platform, which has added professionals across sales, investment specialists, product, marketing, and fund operations.Sivilotti brings extensive leadership experience in the asset management industry, having previously directed global strategy and corporate development (M&A) at PGIM.
“Marcella offers a combination of strategic vision and deep asset management expertise that will prove invaluable as we continue to expand our Global Wealth business. We see a significant opportunity to help advisors enhance their clients’ portfolios through the incorporation of private markets solutions. Marcella’s appointment, alongside the ongoing expansion of our international team, represents another pivotal step in our strategy to build a leading private markets solutions platform serving wealth clients globally,” stated Kimberly LaPointe, Head of Global Wealth at Macquarie Asset Management.
Sivilotti’s appointment aligns with the consolidation of Macquarie Asset Management’s presence in the U.S. wealth management space, where it has recently brought on seasoned personnel across core distribution and client-facing roles. The investment in sales personnel, investment specialists, product, and marketing is expected to strengthen and expand partnerships with wealth management firms and financial advisors, delivering innovative investment solutions and bespoke technical education to support their business development.
Commenting on her appointment, Sivilotti added: “Macquarie has a differentiated investment platform and a very clear ambition for its wealth management division. I am proud to join this team and help build upon this solid foundation, expanding the capabilities and solutions we deliver to wealth management firms and financial advisors.”
Democrats have secured larger-than-expected majorities in the House of Representatives and the Senate in the U.S. midterm elections. Politically, analysts note that the magnitude of the outcome will carry repercussions for the 2028 primaries across both parties. Looking at the markets, trading opened slightly lower—Eurostoxx futures down 0.2%, S&P down 0.2%, and Nasdaq down 0.3%—against the political backdrop of the U.S. midterm elections, a decisive Democratic victory, and Trump’s low 37% approval rating amid a marked increase in the cost of living.
The election outcome has been described as a major wave sweeping across the U.S. electoral map overnight, flipping historically Republican strongholds including Texas, South Carolina, and Kansas—a shift unseen since 1932. Although vote counting has not fully concluded across all districts, Donald Trump has lost control of both the House of Representatives and the Senate.
This marks the most severe midterm defeat suffered by an incumbent administration since 1946, though it comes as only a partial surprise given that Trump’s disapproval had reached historic highs amid backlash against his immigration policies, conflicts with institutional norms, and, above all, the military confrontation with Iran. Having campaigned on combating the high cost of living, the administration paradoxically pursued policies that contributed to rising inflation—first through tariff escalation and subsequently by launching a military campaign in Iran. This vulnerability was leveraged by Democrats, who centered their campaign on household purchasing power to reclaim control of Congress.
Political analysis
A Democratic Congress will subject the administration’s policy agenda to heightened oversight, though the president has already signaled readiness to deploy the executive veto against legislative initiatives. The executive branch will retain wide-ranging foreign policy authority, including subsequent operational decisions regarding Iran. The frequent use of executive orders across immigration and trade also constrains the scope of legislative shifts in those areas.
Even so, the sheer scale of the electoral sweep could expand the ambitions of congressional Democrats. Initiatives targeting increased federal oversight of artificial intelligence and data center development, alongside measures promoting clean energy deployment, are widely expected. However, passing statutory legislation will require bipartisan cooperation in the Senate to overcome the filibuster and survive a presidential veto, narrowing the probability of passage.
A fundamental question remains open: whether these midterms reflect a transient voter reaction driven by immediate frustration with administration policies, or structural evidence of a durable realignment in the Democratic electoral map.
More political than market impact
The 2026 midterms carry broader political ramifications than immediate market consequences as Washington transitions from unified Republican control to divided government. Financial markets extensively priced in this outcome across much of 2026, suggesting that the near-term reaction may remain measured.
Regarding Treasuries, divided government does not inherently produce fiscal consolidation. A large share of the fiscal stimulus associated with the One Big Beautiful Bill Act is already in motion, while persistent deficits and heavy debt issuance schedules are likely to keep upward pressure on yields. Simultaneously, AI-related capital expenditure continues to drive capital demand, as hyperscalers and technology firms issue substantial debt to finance infrastructure expansion. At the same time, divided government could ease political pressure on the Federal Reserve, dampening the risk of an overly loose monetary stance.
The most notable market impacts are likely to emerge at the sector level. AI infrastructure and data center operators could face increased bipartisan regulatory scrutiny, potentially weighing on investor sentiment and delaying capital deployment schedules even in the absence of major statutory changes. Financials could see the tailwind of deregulation fade as divided government creates friction around prospective supervisory rollbacks. In housing and residential construction, market activity remains constrained by the spread between current mortgage rates and the low rates locked in by existing homeowners—a structural dislocation unlikely to be resolved through legislative action alone.
Ultimately, these midterms may do little to alter the macro forces driving financial markets. For investors, ongoing fiscal pressures, increasing competition for capital, and targeted sector-level policy shifts will prove far more decisive than the headline election outcome.
The economy, growth, and corporate earnings under divided government
Regarding what the loss of both congressional chambers means for the broader economy and markets, divided control could provide some fiscal restraint by limiting additional discretionary public spending. Conversely, a commanding Democratic performance could introduce headwinds for segments like artificial intelligence through heightened regulatory efforts.
One potential volatility catalyst would involve legal challenges or disputes surrounding election results, given prior rhetoric questioning institutional integrity. A strong Democratic showing could also temper sentiment across mega-cap tech and AI, where legislative scrutiny is expected to intensify. However, divided government serves primarily to rebalance political leverage in Washington, constraining aggressive, highly partisan policy initiatives once the new Congress takes office on January 3, 2027. Market participants also continue to closely monitor developments in the Iranian conflict as a major macro variable.
For asset allocators, congressional composition matters, but the next directional move across assets will remain anchored in GDP growth, inflation dynamics, and benchmark interest rates. Narrower headroom for fiscal stimulus could weigh on headline growth, while renewed debate surrounding corporate taxation and high-earner brackets could introduce sector-specific dispersion. While U.S. equities have historically rallied following midterm elections as political clarity improves, elevated equity valuations and higher baseline bond yields leave less room for a post-election valuation rerating, placing greater emphasis on underlying corporate earnings growth.
Divided government may provide support for Treasuries by restraining unconstrained fiscal expansion, though inflation trajectory and Federal Reserve policy will remain far more influential for fixed-income markets than the electoral outcome itself, with any further spike in energy commodities compounding the inflation outlook.
The dollar’s trajectory
Analysts are focused on what this electoral realignment implies for the greenback. The U.S. dollar has softened moderately following the outcome. The modest currency depreciation reflects limited immediate legislative policy shifts. While heightened regulatory uncertainty may pose mild headwinds, it is countered by the perceived stability of institutional checks and balances. In the near term, restrictive monetary policy settings and secular capital inflows into AI infrastructure continue to underpin the dollar.
A check on expansionary fiscal policy could curb upward pressure on U.S. sovereign debt issuance and Treasury yields, dampening the relative yield appeal of the currency.
However, the election result does not represent a structural trend reversal for the dollar, given that market pricing had already broadly discounted a divided government outcome. Federal Reserve policy, broader U.S. economic resilience, inflation prints, and developments in the war with Iran will remain the primary drivers of the currency’s trajectory. Investor attention is set to pivot quickly back toward incoming macroeconomic data, particularly the upcoming U.S. employment report on Friday.
