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

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AI at risk customers loyal

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.

AXA Investment Managers Announces the Hiring of Daniella Peña Muñoz

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AXA IM hires Daniella Peña Muñoz
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Daniella Peña Muñoz Has Been Hired by AXA Investment Managers and Will Work at the Firm’s New York Office as Senior Associate US Offshore and LATAM Wholesale Distribution, According to Sources From the Asset Manager Confirmed to Funds Society

“We have hired Daniella Peña Muñoz, coming from Credicorp Capital, for the position of Senior Sales Associate for our sales team based in New York. Her role will be to support clients in the US Offshore and Latin American markets alongside Rafael Tovar, Head of US Offshore & LATAM Wholesale Distribution,” stated AXA.

Peña Muñoz replaces Daniel Menoni, the same sources said.

With studies in finance and law at Universidad Externado de Colombia, Peña Muñoz developed her career at Credicorp Capital for over nine years, serving as Investment Products Senior Associate since 2023.

AXA IM, or AXA Investment Managers, is a global investment management firm and part of the AXA Group. AXA IM is dedicated to asset management for individual and institutional clients, offering a wide range of investment solutions.

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.

F/m Investments and Compoundr Launch the First Fixed Income ETFs to Mitigate the Impact of Tax Burden on Dividends

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F/m Investments, a boutique investment firm with USD 18 billion in AUM and an ETF provider, announced in a statement the launch of the F/m Compoundr ETF series, a set of tax-advantaged fixed income ETFs developed in collaboration with Compoundr LLC.

These ETFs are the first to implement an investment index specifically designed to address the impact of the tax burden on dividends.

Both funds employ Compoundr’s rules-based dividend rotation strategy, powered by the newly launched Nasdaq Compoundr™ indexes. This approach allows investors to gain exposure to income-generating asset classes while gaining greater control over the timing and nature of the taxable income they recognize.

“With Compoundr, we address one of the market’s most underappreciated frictions: dividends that some investors would rather avoid,” said Alexander Morris, CEO of F/m Investments.

Compoundr’s strategy works by rotating between economically equivalent portfolio investments just before their ex-dividend dates, shifting the return profile toward deferred capital gains instead of current income. This tax-efficient exposure to high yield and aggregate bonds, based on indexes in collaboration with Nasdaq, helps investors more effectively capitalize on their after-tax returns over time.

“The ETF structure often assumes dividends are always desirable, but for many investors—particularly trusts and tax-sensitive accounts—they are not,” said David Cohen, partner at Compoundr LLC.

“Compoundr provides access to the exposures investors want, without the tax inefficiencies they don’t. It’s a transparent, rules-based dividend deferral strategy designed to preserve the investment thesis and eliminate unnecessary taxable income,” he added.

“We offer investors greater control over when and how they receive income, within the inherently efficient structure of an ETF,” added David Littleton, President of F/m Investments. “High yield and investment-grade bonds were ideal starting points, but this strategy has broad applicability across many asset classes in the future,” he concluded.

Both ETFs are listed on Nasdaq.

The F/m Compoundr High Yield Bond ETF (CPHY) is managed by John Han, Marcin Zdunek, and Kevin Conrath, while the F/m Compoundr U.S. Aggregate Bond ETF (CPAG) is managed by Peter Baden, Marcin Zdunek, and Kevin Conrath. Each fund tracks its respective Nasdaq Compoundr™ index and rotates monthly, offering exposure without performance-based tax liability.

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

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Alexandre Davis responsible investing
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.

Weakening of the Dollar: The Beginning of a Trend?

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Latin American currencies vs dollar
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90% of Foreign Exchange Transactions Are Conducted in U.S. Dollars, With Approximately USD 7.5 Trillion Traded Daily in the Forex Markets[1]. Internationally, 58% of reserves are held in dollars[2]. The U.S. dollar remains the most important global currency. However, it is currently going through a period of weakness, reminiscent of the Plaza Accord era in the 1980s.

In 1985, the dollar had appreciated by 44% against a basket of major currencies over five years, driven by a combination of tight monetary policy in the U.S. and expansive fiscal policy[3]. This increase in the dollar’s value placed growing pressure on U.S. manufacturing by making exports more expensive and imports relatively cheaper, and contributed to a rising budget deficit, which reached USD 112 billion in 1984.

In response, the Plaza Accord was implemented in 1985 by the G5 nations—France, Germany, United Kingdom, United States, and Japan—with the collective goal of weakening the U.S. dollar and stimulating domestic demand in Japan and Germany. The strategy proved effective: by 1987, the dollar had fallen by 40%, while the German mark and the yen had appreciated significantly. By 1991, the U.S. budget deficit had dropped to USD 30 billion.

Parallels Between the U.S. Dollar Now and at the Start of the Plaza Accord
U.S. Dollar Index (DXY), Indexed: 1/1/85 and 1/1/25 Respectively = 100

DWS 1

The U.S. Dollar Index (DXY) measures the value of the dollar against a basket of six foreign currencies: the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc. Before the creation of the euro, the index included ten currencies—the ones currently included (except the euro), plus the German mark, French franc, Italian lira, Dutch guilder, and Belgian franc. The euro replaced the latter five.
Sources: Bloomberg Finance L.P., DWS Investment GmbH, as of 07/21/2025.

Our chart highlights that the sharp decline in the dollar so far in 2025 follows a path similar to the dollar’s drop in the early phase of the Plaza Accord in 1985[4]. There are parallels with the past that suggest a continued depreciation of the dollar in the coming years. The current U.S. president is focused on strengthening the manufacturing sector and reducing the trade deficit. At the same time, political uncertainty in the U.S. is rising, and central banks are gradually reducing their dollar holdings in favor of gold, the euro, or the Chinese renminbi. Meanwhile, European countries are actively stimulating their own economies.

However, the downward trend of the dollar may not be as intense or rapid as in 1985, mainly because there are no coordinated cross-border agreements to weaken the currency. Instead, the change in the dollar’s value appears to be driven by shifts in investor sentiment, with growing doubts about the U.S. as a safe haven[5], prompting capital reallocation.

We are closely monitoring the dollar’s movement, but we currently do not see major risks of a massive and rapid devaluation. The dollar remains the undisputed global currency due to its high liquidity, its status as the most traded currency in the world, the size of the U.S. economy, and the depth and efficiency of its financial markets. At present, there is no single and realistic alternative capable of replacing it. Our longer-term forecasts assume a continued weakening of the U.S. currency, but not a dramatic devaluation comparable to the Plaza Accord[6].

Opinion Piece by Xueming Song, Currency Strategist at DWS

References

See “Global FX trading hits record $7.5 trln a day – BIS survey,” Reuters; as of October 2022

See “U.S. Dollar Defends Role as Global Currency,” Statista; as of January 2025

See “The Plaza Accord 30 Years Later,” scholar.harvard.edu; as of December 2015

Bloomberg Finance L.P.; as of July 21, 2025

Financial safe havens are investments or assets that are expected to retain or increase in value during times of market turbulence.

For a more detailed assessment, read our CIO Special, “First Cracks in the Dollar’s Dominance,” as of 7/16/25.

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

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Miami real estate elections
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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.

From Private Credit to Real Estate: Why Private Markets Are a Structural Opportunity in Times of Uncertainty

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Sector Estimates Point to Private Markets Growing From the Current $13 Trillion to Over $20 Trillion by 2030. But Before Then, Investors Must Face a Uncertain Second Half of 2025.

On this shorter-term outlook, leading investment firms have expressed their views in their mid-year outlooks, which agree that alternative assets will continue to make sense in investor portfolios.

For example, in the view of Goldman Sachs AM, private markets, hedge funds, and strategies for hedging against extreme risks can offer alternative paths to resilience, while also providing exposure to themes of persistent and accelerated growth. “In private markets, we continue to expect strong investor demand for private credit, driven by its historically attractive risk-adjusted returns and diversification benefits,” they note.

They also add that for investors needing liquidity or looking to rebalance their portfolios, ongoing innovations in secondary markets are offering new options. “We also believe the current environment will continue to favor alpha generation by hedge funds, while reinforcing the diversification value that these investments have historically provided,” they state.

From M&G’s perspective, they believe the recent recovery in private markets is unlikely to be derailed by recent events, since “the structural growth drivers remain intact and will continue,” they note. They add: “The outlook for private credit is more positive than before, with spreads and demand likely to improve. Private equity could be affected by higher financing costs and a more complex operating environment for investments. The unlisted nature of private markets is likely shielding investors from the worst of short-term market volatility, while preserving the long-term appeal of this asset class,” they emphasize.

Peter Branner, CIO of Aberdeen Investments, and Paul Diggle, Chief Economist of Aberdeen Investments, consider private markets to be a structural opportunity given their “ideal” position amid a falling interest rate environment, an economy that is slowing but not contracting, and a historical undersupply of quality assets in areas such as real estate, infrastructure, and private credit.

Investment Ideas

When it comes to specific ideas, Goldman Sachs AM points out that flexible financing solutions, such as hybrid capital, can help companies with strong fundamentals optimize their capital structures. “In an unpredictable macroeconomic environment, we see opportunities to invest in themes of persistent and accelerated growth. Increased spending on defense and infrastructure in developed markets reinforces the strength of economic security, despite recent short-term volatility in equity markets. Artificial intelligence, the clean energy transition, and the return of industrial production are driving strong energy and electricity demand. We believe more private credit aimed at climate transition will be necessary to expand energy solutions across different countries and use cases,” the firm explains.

According to the asset managers, private credit has been one of the most attractive alternative assets during the first six months of the year and is expected to remain so in the next six. “In private markets, rising financing costs could pose a challenge for riskier, unconventional companies and/or those with long-term cash flows exposed to uncertainty. However, despite the challenges, opportunities may arise for debt-focused specialist investors, along with greater incentive for companies to seek funding from parties more willing to assess their specific conditions,” notes M&G.

For the firm, this is not the only investment idea for the second half of the year—they also believe that real estate may remain relatively unaffected by uncertainty. “While it’s possible, it seems unlikely that a weaker economic or corporate environment would significantly harm the currently strong demand for occupancy. In fact, the limited supply and consistent evidence of rising rental levels suggest that the current real estate recovery is well-founded,” they explain.

In that sense, the two experts from Aberdeen Investments add: “The global direct real estate market appears attractive, with improving occupancy and credit markets, but with limited supply. Portfolio diversification is important in an unpredictable world. With increasingly frequent signs of positive correlation between equities and fixed income—both rising and falling in unison—standard equity and bond portfolios will not provide sufficient diversification.”

On the other hand, M&G warns that not all areas of the private markets universe would be immune to a drop in market confidence, and for private equity, the situation could become more complicated: “If the world resigns itself to higher tariff levels than today, this could have an inflationary effect, making it harder for central banks to cut interest rates as much or as quickly as expected. This would increase financing costs for private equity. The operating environment for companies would also be affected, possibly lengthening holding periods and making exits more difficult.”