Powell Follows the Script in Jackson Hole by Opening the Door to a Rate Cut in September

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United States Federal Reserve

The most anticipated event of the week, the central bank symposium held this weekend in Jackson Hole (Wyoming), did not disappoint. In the most highly awaited speech, Jerome Powell, Chair of the Federal Reserve, signaled a potential interest rate cut, which would be the first under the Trump administration.

Commenting on Powell’s remarks, Richard Clarida, Global Economic Advisor at PIMCO, noted that the presentation of the revised monetary policy framework “did not disappoint markets, nor did it surprise Fed watchers,” as the U.S. central bank “appears to be on track to lower short-term interest rates, albeit with a cautious approach.” He considers the changes to the policy framework “sensible and well communicated,” while also highlighting “the Fed’s unwavering commitment to its mandate.”

For his part, Nabil Milali, Multi-Asset and Overlay Manager at Edmond de Rothschild AM, emphasized that before the conference, Powell faced the dual risk of disappointing investors hoping for a shift toward more accommodative policy and undermining the central bank’s credibility by appearing to yield to political pressure from U.S. President Donald Trump. However, the expert believes Powell struck “the difficult balance of opening the door to a rate cut at the September meeting, without at the same time fueling doubts about the Fed’s independence,” through two actions: generally well-measured communication and clear reasoning for future moves.

Milali pointed out that Powell stated that despite recent statistics suggesting an acceleration of inflation in both goods and services, he still considers tariff-related inflationary pressures to be only temporary. Additionally, he noted that the labor market is in a “particular situation,” marked by a decline in business demand as well as a drop in the supply of workers, meaning the unemployment rate “is not yet at alarming levels.”

Even so, the expert highlighted that although Powell’s remarks sparked strong risk appetite across asset classes—as evidenced by the narrowing of high-yield spreads and gains in U.S. equity prices—“the Fed’s decision remains heavily dependent on upcoming inflation data and, above all, employment figures, the latter being more than ever the true arbiter of U.S. monetary policy.”

Meanwhile, Bret Kenwell, U.S. investment analyst at eToro, acknowledged that prior to the symposium, markets were pricing in roughly a 75% probability of a U.S. interest rate cut in September. “Those odds should rise significantly following Chair Powell’s comments in Jackson Hole,” he said, explaining that investors got the response they were hoping for when Powell stated that current conditions “could justify an adjustment to our [restrictive] stance.”

However, Kenwell is also aware that the Fed is in a “difficult position,” with rising inflation and signs of deterioration in the labor market. “As economists have observed in the most recent data, the labor market can change quickly—a risk the Fed is highly aware of,” he noted.

Kenwell explained that if the Fed cuts rates too much or too soon, “it risks stoking the fire of inflation.” Conversely, if it moves too late or too mildly, “it risks deeper deterioration in the labor market and, consequently, the economy.” He concluded that “this delicate balance is precisely why the Fed finds itself in a difficult position.” That said, he has no doubt that once inflationary pressure affects employment, “the Fed is likely to step in to prevent further weakness in the labor market,” and that “it is unlikely the committee will stand by idly if we see further labor market weakness.”

The issue of Federal Reserve independence loomed in the background. In fact, Luke Bartholomew, Deputy Chief Economist at Aberdeen, believes that “the elephant in the room in Jackson Hole was the Trump administration’s attacks on the Federal Reserve.” At this point, he recalled that Powell emphasized the importance of monetary policy independence, but the expert is convinced that “Trump’s influence over central bank decisions is likely to increase from here.”

According to Bartholomew, “all signs point to the Senate attempting to appoint Stephen Miran to the Fed before September, where he would likely vote in favor of even more aggressive stimulus than the currently expected 25 basis points.” He also considers it possible that if the administration succeeds in removing Lisa Cook from her post, “another seat would open up.” Consequently, the Aberdeen economist stated, “Powell’s authority could begin to erode in the coming months, with markets paying increasing attention to the preferences of his potential successor. This could make it harder to anchor inflation expectations in a context of rising prices and add pressure on long-term Treasury yields.”

The Taylor Rule Under Debate


Beyond Powell, the most relevant contribution to the conference came from a presentation by Emi Nakamura, professor at the University of California, Berkeley, according to Karsten Junius, Chief Economist at J. Safra Sarasin Sustainable AM. In her speech, Nakamura explained why the Taylor Rule has performed poorly since 2008 and why it should not be strictly applied going forward—the Taylor Rule suggests that interest rates should rise more than proportionally to inflation.

Nakamura explained why and under what circumstances that is not necessary, allowing central banks to disregard certain potentially temporary shocks. A key factor, as the expert recalled, is how well-anchored inflation expectations are, “which in turn depends on the credibility of the central bank.” In her remarks, she warned that “the high degree of credibility is due in part to the Fed’s strong track record, but also to institutions such as central bank independence. These are valuable assets that can be destroyed much faster than they were built.”

What Does the Historic Rise in Public Debt Mean for the Dollar and Bonds?

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Photo courtesyPeder Beck-Friis, economist at PIMCO

In a recent analysis, Peder Beck-Friis, economist at investment management firm PIMCO, warned about the sustained rise in public debt in G7 countries, highlighting its implications for the U.S. dollar and long-term Treasury yields. According to Beck-Friis, current debt levels are approaching historic highs last seen at the end of World War II.

In his view, these surges have been driven by recent crises such as the 2008 global financial recession and the COVID-19 pandemic, which forced governments to implement extraordinary fiscal measures. “Public debt in advanced economies has followed an upward trajectory for more than a decade, and in the case of the United States, projections from the Congressional Budget Office (CBO) suggest a potential rise to 200% of GDP by 2050 if no changes are made to current fiscal policy,” the analyst warned.

The Dollar Remains Firm, for Now


Despite the concerning trajectory of U.S. debt, Beck-Friis believes the dollar will maintain its status as the dominant reserve currency in the coming years, thanks to its central role in global trade and finance. Currently, nearly 88% of foreign exchange transactions worldwide involve the dollar. “The lack of viable alternatives strengthens the dollar’s position, although the sustainability of this advantage will depend on how the U.S. fiscal outlook evolves,” the economist noted.

Another key point of the analysis is the growing weight of interest payments within the U.S. federal budget. Historically, this type of pressure has led to episodes of fiscal consolidation, as occurred after World War II and again in the 1980s and 1990s. Beck-Friis believes a similar scenario could repeat if financing costs continue to rise.

Finally, the analysis suggests that there is a (though weak) relationship between the rise in public debt (excluding debt held by the Federal Reserve) and a higher term premium on 10-year Treasury bonds. This could result in a steeper yield curve, which would have significant implications for asset managers and the valuation of fixed-income instruments. “The accumulation of public debt could lead investors to demand higher yields on long-term bonds as compensation for future fiscal risk,” Beck-Friis concluded.

Stablecoins Could Become the Largest Offshore Market, Surpassing the Eurodollar

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Stablecoins, cryptocurrencies generally pegged to the U.S. dollar and designed to maintain a stable value, are establishing themselves as a key player in the global financial system. According to an analysis by Jeffrey Cleveland, Chief Economist at Payden & Rygel, this type of digital asset could become the world’s largest offshore market, even surpassing the historic eurodollar market.

In his latest report, Cleveland draws a parallel between the rise of stablecoins in the 21st century and the expansion of eurodollars after World War II. While eurodollars (offshore dollar deposits) helped consolidate the dollar’s dominance internationally, stablecoins could amplify that hegemony in the digital environment. “Could stablecoins further reinforce the dollar’s status as the world’s leading currency? History suggests they could,” the economist posits.

Evolution of Offshore Dollars


He explains that the eurodollar phenomenon dates back to the mid-20th century, when various regulatory and geopolitical conditions led to a growing accumulation of dollars outside the U.S. In the 1970s, the market quintupled, and by the late 1980s, it already totaled $1.7 trillion in offshore deposits. Today, the eurodollar market is estimated to reach $16 trillion.

In his view, stablecoins follow a similar logic, though with a radically different infrastructure. Instead of being managed by banks outside the U.S., they are stored and transferred via public blockchains. Their market value is already approaching $250 billion, with daily trading volumes exceeding $24 billion, nearing that of Bitcoin and surpassing Ether.

“Unlike traditional cryptocurrencies, stablecoins aim to minimize volatility and are mostly backed by real assets. Currently, more than 95% of them are secured by financial instruments such as cash, Treasury bills, or money market assets. Issuing companies like Tether and USD Coin already rank among the top holders of U.S. Treasury debt, with more than $120 billion in sovereign bonds,” Cleveland notes.

Transforming the Global Payment System


Cleveland’s analysis highlights that stablecoins not only replicate many of the functionalities of eurodollars, but also offer competitive advantages that could accelerate their global adoption. These advantages include the ability to conduct transactions with immediate settlement, available 24 hours a day, seven days a week, independent of traditional banking hours. They also offer significantly lower transfer costs, often below three percent and, in some cases, even below one percent of the amount sent.

Added to this is a high level of transparency, as all transactions are recorded in real time on the blockchain, allowing traceability for both users and regulatory authorities. Furthermore, their accessibility far exceeds that of traditional financial systems: anyone with internet access can use stablecoins without intermediaries or bank accounts, opening the door to broader and more global financial inclusion.

These features have already been adopted by the private sector. For example, SpaceX uses stablecoins to collect payments for its Starlink satellite network services. In the past year, the average monthly transaction volume in stablecoins exceeded $100 billion, even surpassing the volume processed by the Visa payments network.

In addition, stablecoins are being used in the decentralized finance (DeFi) market to generate interest, often higher than what traditional banks offer.

Into the Unknown


Cleveland warns that, like eurodollars, stablecoins could pose macroeconomic challenges in the event of liquidity strains or crises of confidence. In 2008, the eurodollar system was one of the focal points of the global financial crisis, due to the pressure to quickly convert offshore deposits into “onshore” dollars.

However, the rise of stablecoins also represents a historic opportunity to strengthen the dollar’s dominance in the digital economy. Despite past efforts by governments to reduce the global influence of the dollar, Cleveland argues that these digital currencies could further deepen its global presence.

“We’ve seen this movie before. Eurodollars cemented the dollar as the hegemonic currency in the 20th century. Today, stablecoins may be writing a new chapter in that same story,” the economist concludes.

From Attitude to Aptitude: Why Risk Tolerance Alone Cannot Determine the Appropriate Risk

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The Difference Between the Risk an Investor Is Willing to Take and the Risk They Should Take Is Not Academic—It’s the Difference Between Checking Boxes and Delivering Truly Suitable Solutions

According to Oxford Risk, for many years, advisers and firms have relied on some version of what is often called Attitude to Risk (ATR) as the main— and in many cases, the only—criterion for portfolio selection. However, they believe that ATR was never truly fit for purpose. “It provided an easy number to anchor to, but not a complete picture. It only captures part of what we need to know about an investor, and often not even that particularly well,” the firm argues.

Oxford Risk’s approach begins with a simple premise: the amount of investment risk an investor should take—their Suitable Risk Level (SRL)—must be based on a more complete understanding of who they are and how they relate to their investments. This requires moving beyond a narrow focus on a single attitude and instead considering a combination of key factors:

  • Risk tolerance, understood as a long-term psychological trait that reflects how much risk an investor is willing to take in relation to their total wealth;

  • Risk capacity, representing their financial ability to take on risk, considering time horizon, dependency on assets, income stability, and liquidity needs;

  • Behavioral capacity, referring to their emotional strength to tolerate market volatility, expressed in traits like composure; and finally,

  • Knowledge and experience, which help assess the investor’s familiarity with the investment world and may temporarily limit their exposure to risk.

Each of these components plays a distinct and complementary role in constructing the investor’s SRL.

The Limits of “Attitude” Toward Risk

The term attitude to risk conceals significant complexity. Each investor has multiple attitudes toward risk: long-term and short-term; rational and emotional; domain-specific and general. What matters is not how a person feels about risk today or in response to recent events, but their stable, long-term willingness to balance risk and return across their total wealth over time.

This is precisely what a well-designed risk tolerance assessment should measure. But market RTA tools often fall short: they confuse risk tolerance with optimism, confidence, or knowledge; they fail to isolate the core trait; and they produce unstable results that may change drastically with the markets.

Moreover, ATR—even when well-measured—is only part of the story. Most tools that use ATR completely ignore risk capacity, and with it, the dynamic life context of the investor’s financial situation. In their view, risk tolerance tells us how much risk people are willing to take; risk capacity, how much they can afford to take. “Ignoring the latter can cost decades of compounded growth and lead to very unsuitable long-term outcomes. Suitable risk isn’t what feels safe today, but what supports financial security over time,” they note.

From Investor to Portfolio

At Oxford Risk, they believe that understanding the investor is only half of the equation. “Assigning them the right portfolio also requires knowing the long-term risk level of that portfolio. This is where another mismatch often arises. Too often, portfolio risk is assessed using short-term historical volatility—a highly unstable and context-dependent measure. This leads to inadequate risk labels and poor long-term alignment,” they state.

In their view, what’s needed is stability on both sides: a stable measure of the investor’s SRL, based on proven traits and models over time; and a stable measure of portfolio risk, based on expectations of long-term outcome uncertainty. “Only if both conditions are met can we ensure that the risk match is accurate at the time of recommendation and remains appropriate as both markets and personal circumstances evolve,” they affirm.

Their key conclusion is that attitude to risk was a useful stepping stone, but it is no longer sufficient (indeed, it never truly was). “A truly suitable level of risk must combine: a precise, psychometric measure of risk tolerance; a forward-looking, situational awareness of risk capacity; a behavioral understanding of composure and its effect on behavior; and an appreciation of knowledge and experience and their role in informed decision-making,” they argue.

In their view, only in this way can we deliver investment solutions that align not only with what an investor says or feels, but with who they are, where they are in life, and the best way to support their long-term goals. “Suitability is not a number. It is a relationship (between investor and investment) based on understanding, adapted over time, and empowered by technology that embeds science into every recommendation,” they conclude.

AI: The Formula to Convert “At-Risk Customers” Into “Loyal Customers”

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Despite the imminent arrival of the so-called “generational wealth transfer,” which will bring a larger number of high-net-worth individuals (HNWIs) and fewer advisors to serve them, many wealth management firms are simply not prepared for success. According to the report “Capturing HNWI Loyalty Across Generations,” published by Capgemini, to ensure that private bankers can interact effectively with this new generation, firms must evolve rapidly on an organizational level but, above all, technologically.

“Wealth management executives who delay will face significant risk of losing both investors and talent to more agile competitors. The leading wealth management firms are adopting AI-based, industry-focused relationship management tools, as well as omnichannel experiences that eliminate manual processes, provide real-time guidance, and autonomously perform predefined tasks. By supporting their advisors and building loyalty among the next generation of HNWIs, these firms are positioning themselves to ensure long-term engagement and sustained business benefits,” the report’s authors state.

Signs of Impending Disruption in the Sector


With the global increase in the population of high-net-worth individuals (HNWIs), many wealth management firms are optimistic about expanding the population they aim to serve. In this context, the report asserts that “the great wealth transfer is also set to disrupt the wealth management sector by significantly straining, or even breaking, well-established loyalty ties.”

According to its analysis, private bankers now face the convergence of three significant trends related to HNWI loyalty. The first is a shift in investment preferences among the next generation of HNWIs. “Comprising Generation X, millennials, and Generation Z, this group expects hyper-personalized engagement. In fact, 81% of next-generation HNWIs plan to quickly leave their parents’ wealth management firm, driven by factors such as the lack of preferred digital channels (46%), lack of alternative investments (33%), and insufficient value-added services (25%),” it states.

Secondly, there will be an increase in the volume and diversity of HNWIs. The report indicates that as family wealth passes down through multiple successive generations, the number of clients to serve grows exponentially. Moreover, more than half (56%) of total wealth is expected to be transferred to women, who may have investment goals, styles, and priorities significantly different from those of men.

And thirdly, firms will face a changing landscape due to the imminent wave of retirements, which will leave an increasingly smaller number of experienced bankers. “Who will take their place? A stream of young, digital-native professionals who expect the workplace to evolve both technologically and culturally. In fact, they are already expressing such significant discontent that approximately one-fourth plan to switch wealth management firms or start their own in the near future,” the document states.

In other words, in the very short term, there will be more high-net-worth clients to serve, with a broader range of expectations for hyper-personalized services, while the supply of senior bankers will drastically decline.

The Value of Private Bankers


As for the importance of the banker in the loyalty-building process, our research also revealed that two-thirds of next-generation HNWIs consider the strength of a firm’s private banker team a key factor when choosing a wealth management provider. Sixty-two percent of next-generation HNWIs state they would follow their relationship manager if they moved to another firm, meaning loyalty is no longer based on the institutional ties felt by previous generations.

However, 56% state that their firms lack the necessary tools to meet the needs of next-generation HNWIs—namely: proactive information, personalized recommendations, and seamless communication across different channels. In light of the report’s findings, it is clear that to build loyalty among next-generation HNWIs, wealth management firms must strengthen their relationship management stance. This includes modernizing live and self-service technologies required to meet client expectations.

The Right Technology at the Right Time


The report notes that, as in many current situations, leveraging automation strategically is not about adopting technology for its own sake. According to its assessment, the key lies in understanding what next-generation HNWI clients expect from their wealth management firm and what tools private bankers need to earn their loyalty.

For example, despite the ubiquity of mobile apps, a surprising finding in the report was the greater interest of next-generation HNWIs in video calls and website interactions over mobile apps. In some types of interactions—such as making inquiries or addressing a concern—even traditional phone calls prevailed over apps.

“Less surprising was the decline in interest in face-to-face meetings, which generally received the lowest rating across all interaction types. The only exception was seeking expert advice, where face-to-face meetings ranked second to last—although only by a small margin,” the report concludes.

Developing an Approach That Fosters Loyalty


To address the imminent shortage of private bankers and ensure that advisors have the tools they need, start by developing a strategic approach to guide the technological transformation for next-generation HNWIs. According to the report, critical aspects include:

Assessing Digital Capabilities.


Since next-generation HNWIs expect seamless, convenient digital channels that allow them real-time access to personalized and relevant information, it is necessary to determine whether the service offering requires any updates. Similarly, the report advises that the platform should enable advisors to deliver hyper-personalized and omnichannel experiences quickly and efficiently.

Adopting Artificial Intelligence.


Ensure that bankers have access to the latest AI tools, including generative AI (GenAI) and agentic AI technologies. “Advanced solutions integrate multiple internal and external sources to eliminate manual tasks, provide actionable insights, and generate real-time recommendations on next steps—allowing advisors to focus their expertise on strengthening client relationships,” the document states.

Incorporating Behavioral Dynamics Technologies.


“It’s no secret that emotions and biases can lead to irrational financial decisions that deeply affect client portfolios and the profitability of wealth management. By adopting modern AI-based behavioral dynamics tools, wealth management firms can empower bankers to quickly identify and navigate clients’ behavioral investment patterns. These types of solutions can also dramatically enhance and hyper-personalize the firm’s communications to help influence how clients invest,” it adds.

Ensuring Readiness for AI Technology.


To get the most out of AI-based solutions, the document notes that it is essential “to be comfortable, confident, and skilled in using the tools.” In its view, only by providing private bankers with sufficient training and peer mentoring will investments in artificial intelligence achieve the desired outcomes.

“Monitor and refine the implementation of technology based on feedback from the firm’s private bankers and next-generation HNWIs. Continuously evaluating your digital tools ensures that your firm can make quick and timely adjustments,” the report concludes.

Who Is Stephen Miran and Why Should Investors Know His Ideas?

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Just Weeks Ago, Through the Truth Social Platform, U.S. President Donald Trump Announced the Appointment of Stephen Miran as a New Member of the Federal Reserve Board of Governors (Fed) Following the Resignation of Adriana Kugler

Miran will temporarily assume this position only until January 31, 2026. This appointment covers the period while a successor is selected for Jerome Powell, whose term as Fed Chair ends in May 2026.

So, who is Stephen Miran? Until now, Miran held the position of Director of the Council of Economic Advisers (CEA), to which he was appointed by Trump in December 2024. According to analysts, he is considered the architect of Trump’s reciprocal tariff policy and the promoter of a plan called the “Mar‑a‑Lago Accord,” aimed at countering the overvaluation of the dollar and restructuring the global trade system. Additionally, he has been one of the most vocal critics of the Fed’s independence and has made numerous proposals, such as shortening the terms of Fed governors or changing the way they are appointed.

Key Ideas: Dollar and Bonds

Regarding Miran, Gilles Moëc, Chief Economist at AXA, notes that his essay on how to distort the global monetary system to better serve U.S. economic interests is highly insightful for understanding his views. “In it, he outlines several ways to provoke a depreciation of the dollar without causing a drop in demand for U.S. assets, which would otherwise lead to rising interest rates in the U.S. and, eventually, an economic slowdown, further complicating the already complex budget equation,” he states.

In this context, Moëc summarizes that Miran’s idea is that, under a “Mar‑a‑Lago Accord”—inspired by the Louvre and Plaza Agreements of the 1980s, when Europe and Japan coordinated efforts to devalue the dollar—foreign central banks would agree to shift their reserves into very long-term or even perpetual U.S. Treasury bonds. This would limit long-term interest rates, while private investors would exit the U.S. market in anticipation of the dollar’s depreciation.

“Miran himself emphasizes how unlikely it would be for Europeans to accept such a measure and therefore introduces a coercive dimension: long-term investment in U.S. debt would be the ‘compensation’ Europeans pay to avoid tariffs and benefit from Washington’s continued military protection. However, and this is a point Miran raises without resolving, a significant problem is that European investments in the U.S. are mainly the result of countless decentralized decisions made by private actors: real-economy companies for direct investment, and asset managers and institutional investors for portfolio flows.”

According to Moëc, Miran’s essay proposes another “worrisome” idea: the possibility of taxing the interest paid on Treasury securities to non-resident investors. In his view, this would likely drive them away from the U.S. bond market, but given the difference between the amount of central bank reserves and the U.S. assets held by private investors, “the net effect on the overall cost of U.S. financing could be dramatic for the health of the U.S. economy.”

“In short, the current U.S. approach to its trade and financial relations with Europe aims to improve a situation already highly favorable to the United States. There is a limit to how far American interests can be pursued through coercion. Europeans may come to see the macroeconomic cost of maintaining a close political and defense relationship with the U.S. at all costs as too high, making other geopolitical options more acceptable,” he concludes.

The Fed and the FOMC

The second assessment from experts is that Miran’s arrival at the FOMC will generate some conflict due to his view that the dollar is overvalued and that the U.S. trade balance cannot be rebalanced as a result. “He believes that, to secure the financing of U.S. public finances, other countries could be made to purchase very long-term Treasury bonds. This likely came up during tariff negotiations. I’m thinking, for example, of the $600 billion from the European Union and $550 billion from Japan, which Trump wants to use at his discretion,” says Philippe Waechter, Chief Economist at Ostrum AM (a Natixis IM affiliate).

According to his analysis, for the Fed, a fall in the dollar would trigger an inflation shock that would add to the impact of tariffs and, in such a case, the Fed would need to raise its policy rate. Moreover, if a “Mar‑a‑Lago Accord” were perceived by investors as credible, it could trigger significant capital outflows from U.S. markets; if not, any drop in the dollar would be seen as an opportunity. For Waechter, “the power struggle between Powell and Miran will be crucial for everyone. The risk is that U.S. monetary policy becomes subject to White House directives. That would be a disaster.”

A similar warning comes from Muzinich & Co: “Personnel changes matter less for the short-term path of official interest rates—which markets still expect to trend lower—than for the issue of institutional independence. Trump’s repeated public criticisms of Powell, calling him ‘too slow’ and an ‘idiot,’ among other insults, keep alive the possibility of a leadership transition at the Fed aligned with the administration’s more interventionist economic stance.”

In this context, Enguerrand Artaz, strategist at La Financière de l’Échiquier (LFDE), adds that “the Fed’s independence has come under attack, and the central bank’s communication is going to be complicated over the coming months.” For Artaz, this situation is part of a broader institutional dynamic: “The functioning of U.S. institutions has been weakened during the early months of Trump’s term.” This structural weakening is accompanied by “enormous uncertainty regarding its impact on growth and inflation.”

The outcome of Powell’s succession will mark a dividing line between two conceptions of the Federal Reserve’s role: as a technical guarantor of macroeconomic stability or as a political tool serving the presidential agenda, he concludes.

Portfolios Facing Tariff Walls: Is Asset Securitization the New Path?

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In recent years, international trade has been marked by a shift toward protectionism and fragmentation. Geopolitical tensions, coupled with unilateral tariff decisions, have triggered a wave of measures impacting countries, sectors, and supply chains in uneven ways. In this new environment, where trade policy increasingly influences financial flows, markets have responded with  volatility and uncertainty, according to FlexFunds.

The imposition of selective tariffs, the redesign of trade agreements, and the growing regionalization of production are reshaping the global economic map. Sectors such as technology, manufacturing, and consumer goods—highly exposed to international flows—have been the most affected, while inflation expectations and monetary policy decisions add further pressure on portfolio returns.

The trade dispute between the United States and China marked a turning point in the international trade system. Protectionist measures imposed by both countries—such as increased tariffs on key products and the enforcement of technological restrictions—set off a chain reaction in other economies that also opted for protectionist approaches in their trade policies. The European Union, India, and even some Latin American nations have tightened foreign trade regulations to protect their domestic industries.

For institutional managers, these changes demand far more than tactical adjustments: they require a deep reassessment of diversification and asset allocation strategies. In this context, asset securitization emerges as a key tool to mitigate risks, preserve value, and capture new opportunities in an increasingly uncertain and fragmented environment.

How Tariff Pressures Are Reshaping the Role of Portfolio Managers

Widespread tariffs and growing trade uncertainty impose new challenges for asset managers:

 

Faced with this scenario, many managers are rethinking traditional exposures and adopting more flexible and resilient solutions. Among these, one strategic tool is gaining prominence: asset securitization.

Asset Securitization: Tactical Flexibility and Macro Alignment

Asset securitization enables the transformation of illiquid assets—such as real estate cash flows, invoices, corporate revenues, or loan portfolios—into structured, efficient, and tradable vehicles. This practice offers institutional managers significant advantages in the new environment:

1. Structural flexibility and improved liquidity
Converting private assets into listed or transferable instruments—such as structured notes or asset-backed funds—allows for quick adjustments to exposure without sacrificing diversification or efficiency.

2.- Ease of portfolio rebalancing
In an environment of geopolitical fragmentation and frequent regulatory changes, having structured vehicles allows for rapid portfolio adjustments, dynamically adapting to new trade restrictions, regional opportunities, or shifts in sector outlooks.

3. Targeted geographic diversification
Through securitization, managers can gain exposure to assets in regions less affected by tariff policies. For example, economies such as Mexico or India could benefit from supply chain shifts driven by nearshoring.

4. Inflation protection
Structures indexed to real cash flows—such as rents or adjustable fees—help preserve portfolio purchasing power, offering alternatives to traditional bonds currently under pressure from high interest rates.

5. Efficient access to defensive sectors
Securitization facilitates the inclusion in investment strategies of sectors less sensitive to international trade, such as infrastructure, energy, healthcare, or logistics, through structures tailored to institutional appetite.

6. Tax optimization and regulatory compliance
Structuring these vehicles from efficient jurisdictions, such as Ireland, maximizes tax and regulatory benefits, particularly in contexts where domestic rules may tighten.

Redefining Portfolios, Anticipating Scenarios

Portfolio managers who integrate securitization as a strategic tool can:

  • Reduce exposure to regions under tariff pressure or sanctions
  • Access assets in areas with more stable or industry-friendly policies
  • Capitalize on structural trends such as reshoring and nearshoring, which are reshaping global investment flows

And beyond mitigating geopolitical risks, they can:

  • Align their portfolios with the new global value chains
  • Position capital in regions and sectors with growth potential
  • Design investment vehicles that respond to global macrostrategy, beyond mere asset selection

In an environment defined by volatility, trade polarization, and constant rule changes, asset securitization moves from being an operational technique to a strategic positioning tool. For institutional managers, it represents a way to preserve value, gain agility, and build portfolios aligned with the new global economic order.

Moreover, the ability to facilitate dynamic portfolio rebalancing—amid shifts in trade policies, regulatory risks, or macroeconomic adjustments—makes securitization a key mechanism for keeping investment strategies relevant and resilient in real time.

In this context, FlexFunds offers asset securitization solutions—a process that converts different types of financial assets into tradable securities. FlexFunds’ solutions can repackage multiple asset types into an investment vehicle, enabling managers or financial advisors to distribute their strategies more easily and cost-efficiently to a broader client base.

For more information, you may contact our specialists at info@flexfunds.com.

Alexandre Davis (Wellington Management): “Investing Responsibly Means Focusing on Long-Term Value Creation”

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Photo courtesyAlexandre Davis, Investment Director at Wellington Management

In a context marked by market volatility, geopolitical uncertainty, and constant regulatory changes, responsible investment remains a fundamental pillar for those seeking sustainable long-term returns. In the view of Alexandre Davis, Investment Director at Wellington Management, SRI continues to be synonymous with long-term vision and structural investment opportunities. We discussed this in our latest interview.

What Has Happened to Sustainable and Responsible Investment? Has It Been Pushed to the Background?

For me, investing responsibly means focusing on long-term value creation, which involves understanding not only a company’s revenues and products but also its supply chains. This goes beyond short-term disruptions and takes into account structural changes, such as the rise of protectionism since the COVID pandemic or earlier political decisions. For example, we invested in a life sciences company that, as early as 2017, decided to move its production out of China in response to rising tensions between China and the United States, which have only intensified since then. This kind of forward-looking risk management is at the heart of our engagement efforts. We spend a great deal of time in dialogue with companies to help ensure they are as well-positioned as possible to achieve long-term success and remain resilient amid a changing global environment.

Given the Current Context, What Elements or Factors Could Act as Catalysts for Investors to Reprioritize Responsible Investment?

Ultimately, investors rightly focus on returns, as they are the main benchmark for evaluating the success of an investment. Although the environment has been more challenging in the short term for those applying responsible investment criteria—due to a highly concentrated market performance—we continue to see long-term opportunities, especially as the market broadens. Companies with a strategic long-term orientation and that aim to maximize resource efficiency should be better positioned than those that do not. Fundamentals, profit generation, and the ability to generate alpha for our clients are key elements in continuing to demonstrate the relevance of responsible investment in today’s context.

How Can Sustainable Equity Portfolios Align With Current Macroeconomic Conditions?

Every day brings new headlines about tariffs, regulation, geopolitics, conflicts, climate change, or artificial intelligence. The pace of change is constant, which requires executive teams and boards of directors to ensure their companies can adapt and evolve to remain competitive. Meanwhile, the characteristics that we believe increase the likelihood of long-term success remain the same: a sustainable competitive advantage (moat), a strong balance sheet, high-quality leadership, an empowered board, a stakeholder-oriented vision, and disciplined capital allocation that preserves and enhances value over time. These are the qualities we seek—and the standard we continue to demand—in all portfolio companies. When strong leadership reinvests wisely and with a long-term vision, it activates what we call the stewardship flywheel: a virtuous cycle of value creation in which leaders allocate capital to sustain and enhance future returns.

We Often Talk About Responsible Investment, but What Does the Stewardship Approach Promoted by the Fund Manager Really Add?

Our approach is based on three fundamental pillars: long-term vision, core portfolio construction, and active dialogue with the companies we invest in. We invest with a horizon of over 10 years, in contrast with the average holding period in the market, which is around 10 months. This horizon allows us to support companies in developing their long-term strategy and creating sustainable value. The portfolio is designed to capture security-specific risk and return, avoiding the common bias toward growth or technology observed in many sustainable strategies. In addition, we maintain active dialogue with the companies we invest in, especially with their boards of directors, which often go unnoticed despite their key role in governance, succession, and long-term strategy. This direct, hands-on involvement reflects our fiduciary responsibility and our commitment to sustainable long-term value creation.

Based on Your Experience, How Has the Concept and Approach to Stewardship Evolved in the Fund Industry?

When we launched this strategy, we saw clear demand for a responsible investment proposition capable of generating long-term returns without relying on growth factors or showing excessive concentration in technology. We believe that investing with a long-term perspective requires balanced sector and geographic risk management, allowing returns to be driven by security selection. This philosophy—based on rigorous portfolio construction, active management, and responsible corporate oversight (stewardship)—has been very well received by clients. The strategy acts as a stable core allocation, on top of which more tactical exposures by style or sector can be built, providing both resilience and flexibility.

How Can an Active Stewardship Approach Reveal Opportunities? Is It More Useful in Times of Uncertainty?

We believe stewardship cannot be passive. We conduct more than 130 interactions a year with the companies we invest in, making the most of our time with executive teams and boards to focus on their long-term strategy. We invest in businesses with strong balance sheets and consistent cash generation, which allows them to be more resilient to short-term disruptions such as tariff changes, regulatory uncertainty, or shifts in economic policy. These interactions allow us to assess the quality of leadership, decision-making, and strategic direction. In times of volatility, the board’s vision and foresight are key to achieving better outcomes. Through active dialogue, we analyze these strengths while also looking for clear signals of execution and a strong talent base in CEOs and their teams to ensure continuity in times of crisis.

Finally, Could You Mention Three Ways ESG Factors Can Enhance Portfolios for the Second Half of the Year?

We believe our approach is especially well suited to today’s environment. First, it helps reduce volatility by focusing on companies with strong leadership capable of navigating complex and changing political and economic contexts. Second, it is a core strategy that diversifies risk through the selection of high-quality companies across different sectors and regions. Third, our long-term approach avoids the mistakes associated with short-term decisions—such as overreliance on certain supply chains—that can lead to future disruptions. We believe companies that manage these risks proactively are better positioned to deliver sustainable returns. This disciplined, forward-looking strategy allows investors to stay focused and aligned with their long-term goals.

Sovereign Wealth Funds Shift to Active Management to Better Navigate Political Uncertainty

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Political and Regulatory Decisions Have Become the Main Drivers of Investment Strategy, Leading Sovereign Investors to Fundamentally Reassess Portfolio Construction and Risk Management, According to the 13th Annual Invesco Global Sovereign Asset Management Study.

While geopolitical tensions (88%) and inflationary pressures (64%) remain the main short-term risks for sovereign wealth funds and central banks, concern over excessive volatility in financial markets has increased—cited by 59% of respondents, up from 28% in 2024. Nearly 90% believe that geopolitical competition will be a key driver of volatility, while 85% expect protectionist policies to entrench persistent inflation in developed economies. Specifically, 62% of those surveyed now see deglobalization as a major threat to investment returns, highlighting a marked shift in market narrative.

The Invesco Study—One of the Leading Indicators of Sovereign Wealth Fund and Central Bank Behavior—Is Based on the Views of 141 Senior Investment Professionals, including Chief Investment Officers, Heads of Asset Classes, and Portfolio Strategy Leads, from 83 sovereign wealth funds and 58 central banks around the world, collectively managing $27 trillion in assets.

Active Strategies Gain Ground Alongside Core Passive Exposure

One of the key changes in portfolio structuring identified in the study is the increased use of active strategies by respondents. On average, sovereign wealth funds and central banks hold more than 70% of their portfolios in active strategies, both in fixed income and equities.

The survey revealed that 52% of sovereign investors plan to increase their active equity exposure over the next two years, while 47% plan to do the same with fixed income. This shift is more pronounced among the largest institutions: 75% of sovereign investors managing over $100 billion have adopted more active equity strategies over the past two years, compared to 43% of mid-sized investors and 36% of smaller ones.

While passive strategies continue to offer advantages in terms of efficiency and scale—especially in highly liquid public markets—active approaches are increasingly being used to address index concentration risks, manage regional dispersion, and enhance resilience across various scenarios in an increasingly fragmented landscape. At the same time, portfolio configuration decisions—such as tilting toward specific asset classes, geographies, or factors—are increasingly seen as core expressions of active management.

Fixed Income Redefined and Reordered

Driven by a combination of geopolitical shifts and interest rate normalization, traditional portfolio construction models are being reconsidered, with many sovereign funds adopting more dynamic approaches. These include more flexible asset allocation, improved liquidity management, and increased use of alternative assets.

In this context, fixed income has gained greater prominence in sovereign wealth fund portfolios, becoming the second most favored asset class—only behind infrastructure. On a net basis, 24% of sovereign funds plan to increase their fixed income exposure over the next two months.

While the normalization of interest rates and rising yields have contributed to this rebound, fixed income has also taken on a broader role—as both a liquidity management tool and a flexible source of returns and portfolio resilience.

As allocations to private markets increase, portfolios are becoming increasingly illiquid, making liquidity management a key strategic priority.

As a result, nearly 60% of sovereign investors report using formalized liquidity frameworks, with segments of their fixed income portfolios specifically positioned to offset the illiquidity of their private market exposures.

“Fixed income is no longer limited to defensive, risk-free positioning—it has become a dynamic and versatile part of the portfolio. As the market structures change, liquidity needs grow, and return-risk assumptions evolve, fixed income is taking on a broader role in strategic portfolio management, fulfilling multiple functions simultaneously rather than acting solely as a defensive anchor,” says Rod Ringrow, Head of Official Institutions at Invesco.

Private Fixed Income Gains Traction as a New Diversification Tool

Investment in private fixed income continues to gain momentum among sovereign wealth funds, with the proportion accessing this asset class through direct investments or co-investments rising from 30% in 2024 to 44% in 2025. Fund-based access also increased, from 56% to 63%, and 50% of sovereign funds plan to increase allocations over the next year, led by institutions in North America (68%).

This growing interest reflects a broader rethinking of diversification, as traditional correlations between equities and bonds erode in an environment of higher rates and elevated inflation.

Sovereign debt investors are turning to private credit to gain exposure to floating rates, customized deal structures, and return profiles that are less correlated with public markets. Private debt, once considered a niche asset class, is now viewed as a strategic pillar for building long-term portfolios.

“Private fixed income is an excellent example of how sovereign investors are adapting to a structurally different market environment. They are building portfolios that prioritize resilience and flexibility, and private fixed income offers exactly that—providing both scalability and greater control,” says Rod Ringrow.

China Reemerges as a Strategic Priority in a Fragmented Emerging Markets Landscape

Sovereign wealth funds are taking a more selective approach to emerging markets. However, Asia excluding China remains a priority for 43% of respondents. China continues to be one of the main areas of focus, rising from 20% in 2024 to 28%. Sovereign funds are increasingly directing their strategies in China toward specific technology sectors such as artificial intelligence, semiconductors, electric vehicles, and renewable energy.

78% of respondents believe that China’s technological and innovation capabilities will be globally competitive in the future.

When it comes to expected allocations to China over the next five years, only 48% believe the country will successfully transition to a consumption-based economy. Public and private market exposures are being adjusted accordingly.

Active management is seen as essential in this environment. Only 9% of sovereign wealth funds rely on passive emerging market strategies, while 85% access these markets through specialist managers, citing the need for local insight and tactical flexibility.

“Sovereigns are rethinking their approach to emerging markets—they’re being selective and placing greater emphasis on long-term structural opportunities, building portfolios that recognize the complexity and diversity of these markets, with China reaffirming its position at the center of this recalibration,” emphasizes Ringrow.

Digital Assets Under Continued Exploration

Digital assets are no longer considered an outlier theme among institutional investors. This year’s study shows a small but notable increase in the number of sovereign wealth funds making direct investments in digital assets—11%, up from 7% in 2022. Allocations are more common in the Middle East (22%), APAC (18%), and North America (16%), compared to 0% in Europe, Latin America, and Africa.

A surprise in the study was the growing interest from some sovereign wealth funds in so-called stablecoins, particularly among those in emerging markets. They are considered easier to integrate than traditional cryptocurrencies due to their price stability and potential for real-world application. This makes them more suitable for future cross-border payment systems or liquidity management tools.

Many sovereign funds still prefer indirect exposure—investing through venture capital vehicles, innovation platforms, or structure-related funds—rather than holding direct stakes. However, this shift toward direct investment, though small, reflects a move from abstract interest to real-world participation.

Central banks are simultaneously advancing their own central bank digital currency (CBDC) initiatives, balancing the potential for innovation with considerations of systemic stability. CBDCs offer potential advantages: in emerging markets, they aim to improve financial inclusion and modernize payments, while in developed markets, they focus on payment efficiency and monetary sovereignty. However, most central banks remain in research or pilot phases due to the complexity of risk.

Central Bank Resilience and the Defensive Role of Gold

Central banks are strengthening their reserve management frameworks in response to growing geopolitical instability and fiscal uncertainty. Nearly two-thirds (64%) of central banks plan to increase their reserves over the next two years, while 53% intend to further diversify their portfolios.

Gold continues to play a central role in this effort, with 47% of central banks expecting to increase their gold allocations over the next three years. Seen as a politically neutral store of value, gold is increasingly viewed as a strategic hedge against risks such as rising U.S. debt levels, the weaponization of reserves, and global fragmentation.

At the same time, central banks are modernizing the way they manage their gold exposures. In addition to physical holdings, more institutions are turning to dynamic tools such as ETFs, swaps, and derivatives to adjust allocations, enhance liquidity management, and increase overall portfolio flexibility—without sacrificing defensive protection. This trend is expected to continue, as 21% of respondents say they plan to invest in gold ETFs over the next five years, up from 16% currently, while the number of respondents planning to invest in gold derivatives is set to double, rising from 9% to 19%.

Geopolitics Displaces the Economy as the Main Concern of Central Banks

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Once Again, UBS AM Gets Into the Minds of Top Central Bank Leaders With a New Edition of Its UBS Annual Reserve Manager Survey

After gathering the views of 40 monetary institutions, the main conclusion of the report is that geopolitics has displaced monetary policy as one of the most relevant issues of the moment.

“This year, the shift from monetary policy to geopolitics was palpable. There was much less talk about inflation or interest rate paths, and much more about scenario planning for global disruptions. The widespread concern over a possible resumption of the trade war under a second Trump administration stood out most. Nearly three-quarters of reserve managers identified this as the main global risk, ahead of inflation or rate volatility. That says a lot about current sentiment,” says Max Castelli, Head of Strategy and Advice for Global Sovereign Markets at UBS Asset Management.

According to Castelli, this year’s conversations felt less like forecasting and more like “contingency planning.” “Reserve managers know the playbook has changed: they’re not just reacting to volatility—they’re repositioning for a world where fragmentation is the norm, not the exception,” he notes.

He also acknowledges that what struck him most was the “quiet urgency” with which they are acting. “Reserve managers aren’t panicking, but they are preparing. From FX hedging strategies to liquidity buffers, there’s a clear sense that the coming years won’t look like the last ten. In a context of high uncertainty, there is a marked rise in pessimism among central banks; for instance, they now consider stagflation to be just as likely as the soft landing that was generally expected in last year’s survey,” he states.

Key Findings

In this context, it is notable that 86% of respondents expect that the MAGA agenda (tariffs, deregulation, lower taxes, cheap energy, and DOGE-style cost cutting) will not succeed in boosting the U.S. economy in the long term. Instead, reserve managers believe that several key factors that made the U.S. the preferred destination for international asset allocators may be at risk:

  • 65% believe that the independence of the Federal Reserve is at risk.

  • 47% think there could be a deterioration in the rule of law significant enough to influence reserve managers’ asset allocation decisions.

  • 29% see a risk to the openness of U.S. capital markets.

When Sharing Their View on Economic and Financial Outlooks, Respondents Showed a Notable Increase in Pessimism

40% expect the U.S. headline CPI to be in the 3%–4% range within a year, and more than 80% believe the Fed’s interest rates will also fall within that range during the same period.

When it comes to risks, the most frequently mentioned word is geopolitics, which has now taken center stage in central banks’ concerns, displacing economic issues. Evidence of this shift is seen in the fact that 74% of reserve managers identify an escalation of the trade war as the main risk, followed by a rise in military conflicts (51%).

Implications for Asset Allocation

So how does this translate into asset allocation? According to the survey, reserve managers remain well diversified in public markets, but the trend toward greater diversification appears to have peaked. In this regard, gold continues to show strong demand and is expected to offer the best risk-adjusted returns over the next five years.

Emerging market debt, corporate bonds, and particularly green bonds were also frequently mentioned as assets that central banks plan to incorporate over the next year. At the same time, the trend toward increasing equity exposure is slowing.

Another key data point is that 80% of respondents expect the U.S. dollar to remain the global reserve currency, although there are clear signs of diversification toward other currencies, with the euro being the primary beneficiary.

“The dollar is not favored, but reserve managers are uncertain. There are no true alternatives. Most central banks surveyed expect the U.S. dollar to remain weak, although they remain skeptical about whether this signals the start of a prolonged trend. Dollar weakness is not unprecedented, given the extended period of strength,” notes Castelli.

Sentiment toward the renminbi (RMB) also appears to be improving slightly. In this regard, Castelli adds: “While demand for U.S. assets is more vulnerable, the U.S. dollar is still widely expected to remain the dominant reserve currency (79% of respondents). The euro is seen as the most likely to benefit from macroeconomic and geopolitical shifts over the next five years (74%), followed by the renminbi (59%) and, perhaps surprisingly, digital currencies ranked third (44%).”

Lastly, the survey highlights the trend of digital assets—including cryptocurrencies and stablecoins—which were mentioned as one of the asset classes expected to benefit most from the current geopolitical environment, just after the euro and the renminbi.