Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
Why asset owners should fret a second Trump presidency
While the world is already vastly different to how it was when Trump first took power – and there’s a much greater focus on sustainability – a second go round would “set us back”, according to Anthony Scaramucci, the record-holder for shortest stint as a US presidential press secretary, lasting just ten days in the position in 2017. A confidant of Trump prior to his entry into the White House, Scaramucci knows his way of thinking pretty well – and has a dim view of it.
And he thinks that the bigger problem is that Trump has a perspective on NATO, and geopolitics, that “anybody who runs capital wouldn’t want him to have”; one essentially incompatible with the rules-based order that has reigned since 1945.
“Yes, we have our adversaries, but there are certain ground rules in terms of the way we operate with each other and this has led to a steady flow of capital going into great innovation and great ideas in the West,” Scaramucci told the ASFA Investment Summit on Thursday. “If you think about the American navy, it’s done more in the last century to protect your economy than just about any other engine in the economy, because of shipping lanes; shipping lanes for energy, shipping lanes for manufacturing, all of this is very hard to go up against the current American navy. The Seventh Fleet is the biggest deterrence against the Chinese when it comes to Taiwan.”
Trump “wants to roll all this back”, questioning why the United States maintains troops in the Korean DMZ or flags tankers coming out of the Persian Gulf when it isn’t getting direct benefits. But it is, Scaramucci said; it gets Korean goods at a lower price than Europe, while energy prices are likely lower.
Scaramucci’s vision of the dangers of a more multipolar world is similar to that held by the Future Fund, which says that heightened strategic competition will “throw sand in the gears” of the flow of labour, goods and capital, though its view tends to focus more heavily on economic protectionism rather than explicit nativism as a cause.
“In Leviathan, Thomas Hobbes writes that the world has its greatest level of peace when there’s one military hegemon that is able to suppress the internecine tribal conflicts around the world,” Scaramucci said. “Conflict between Taiwan and China is an example; the US’ goal or objective is to have this very big military footprint to suppress that internecine violence. When somebody like myself would explain that to Trump, he would scoff at that.”
On the China question, Scaramucci thinks the US made a number of “perilous” mistakes when it came to opening relations with them, though the biggest was assuming that liberalisation of its government would follow from liberalisation of its economy through entry into the World Trade Organisation – the protections of which it “gamed” to its own benefit.
“We thought China were willing and able to integrate with the rest of the world,” Scaramucci said. “You cycle through benevolent leadership and malignant leadership. I’m not saying that President Xi is malignant; I don’t know him personally, and I think he’s very worried about a conflict with the United States.
“But the relationship that we have with China in 2024 is very different to the one that we had in 2012. The left and the right feel that they now need to check China, because of tis expansionary rhetoric, because of its decision to disengage with the West and become more competitive with the West as opposed to more collaborative. How long that will last I don’t know. But I think that this is probably the only thing in Washington that the left and right agree on right now.”
But Trump is talking once again about economic protectionism and threatening to institute extensive tariffs – tariffs that will eventually function as a progressive tax on consumers, with the poor paying more for goods than the rich as a percentage of their income.
“He’s talking in this very simplistic way to people, and whether you like or dislike him, his acolytes and the people who support him believe him… The Chinese situation for us, in America, has to be handled very delicately.”
