Survey shows investment professionals increasingly believe geopolitical risks will have a negative impact on the industry
London, United Kingdom 15 Mar 2017
- A large majority of respondents believe changes to the global geopolitical environment will compromise investment returns over the next three to five years
- Widespread concern about geopolitical risks including Brexit, President Trump and potential EU fragmentation are increasingly considered to be a long-term threat to the investment industry
- Uncertainty has not initiated changes in investment strategies, despite the negative outlook
CFA Institute, the global association of investment professionals, surveyed its global member base in February to gauge the impact of current political uncertainties on the asset management industry.
The survey of almost 1,500 investment professionals from around the world revealed global investors’ views on the potential repercussions of a rapidly shifting geopolitical climate. It follows a previous membership poll taken in July 2016 on the likely impact of the UK’s decision to leave the European Union.
Responses show that concern about the impact of geopolitical risk in the investment profession has grown since the poll in July 2016. Changes to the geopolitical environment are widely expected to have long-term impacts on the financial markets. The vast majority of respondents (70%) expect investment returns to be compromised by geopolitical uncertainties over the next three to five years. However, despite the risks identified by members in the poll, a large majority of portfolio managers (71%) say that they have not changed their strategy as a result of the Brexit vote.
British investment professionals are particularly worried about the effects of Brexit: 70% said that Brexit had caused the competitiveness of the UK market to deteriorate. Equally, assessing the relative attractiveness of international financial centres, respondents overwhelmingly identify London as the biggest Brexit ‘loser’. Frankfurt, Dublin, New York and Paris, meanwhile, are considered to be the biggest ‘winners’.
The survey also reveals that nearly three quarters of respondents from continental EU countries expect firms in their market to reduce their presence in the UK as a result of Brexit.
In addition, the results reflect a growing belief that Brexit will spark further exits from the EU. 59% of respondents believe that further exits from the EU are likely, a 10% increase since the July 2016 poll. The proportion of respondents who think EU wholesale disintegration is likely has also risen, from 21% to a significant 36%. UK fragmentation caused by a successful Scottish independence referendum is also considered probable by the majority (53%).
As well as evaluating the consequences of Brexit, respondents were asked to assess other international political risks. Sixty seven per cent of investment professionals identified the election of President Trump as the political risk with the biggest impact on investment strategy followed by the 2017 French election, with 10% of respondents considering this to be the most significant political risk.
Says Paul Smith, CFA, President and Chief Executive of CFA Institute:
“The current state of political uncertainty ahead of Article 50 being triggered is having a clear impact on investment professionals’ market expectations. That said, it is important to remember that geopolitical risk is by no means new: apart from the 20 years following 1989 and the fall of the Berlin Wall, geopolitical risk has in fact been a constant feature of financial markets. It is also only one of many challenges and potential drivers of change in the investment industry.
In this climate, it is crucial for investment management professionals to earn the trust of investors. We are enabling our global members and charterholders to understand the potential impacts of such shifts and ensure that they are equipped with the knowledge and skills to safeguard investors’ interests.”
Says Gary Baker, CFA, Managing Director, CFA Institute (EMEA):
“The views of investment professionals revealed in this survey demonstrate that in this region, the City faces serious challenges in the coming years. Expectations that many firms will reduce their presence in the UK is a major cause for concern, especially against the backdrop of markets in the rest of the world experiencing little deterioration. As the world’s largest association of investment professionals, our role is to ensure our members and charterholders are equipped with the educational skills to adapt as a new world order begins to unfold, and to continue to advocate for the highest standards of ethics, integrity and professionalism across the industry.”
About the survey
The survey was undertaken between 6 and 13 February 2017. 1,428 investment professionals completed the survey: 143 from the UK; 295 from other EU countries (excluding the UK); and 990 from the rest of the world. This survey follows an initial survey of 2,043 investment professionals taken between 13 and 21 July 2016.
CFA Institute is the global association of investment professionals that sets the standard for professional excellence and credentials. The organization is a champion for ethical behavior in investment markets and a respected source of knowledge in the global financial community. The end goal: to create an environment where investors’ interests come first, markets function at their best, and economies grow. CFA Institute has over 145,000 members in 163 countries and territories, including 140,000 CFA charterholders, and 148 member societies. For more information, visit www.cfainstitute.org.