Global asset managers face a significant obstacle to overcome as they plan their portfolio constructions in 2026.

Over the last 18 months, the geopolitical temperature has risen significantly, principally due to conflicts breaking out in the Middle East with the US/Israel attack on Iran adding heat to an already unstable global arena.

Geopolitics reshapes portfolio construction

Such uncertainty places new demands on how investment teams think about risky assets, where they should be prioritising their asset allocations, what investment criteria to amend or update, and how best to stress test portfolios to ensure risk management processes reflect this age of higher volatility.

The ability to deal with geopolitical shocks is a key marker for investors as they assess who are best-in-class managers, and who are not. Building resilient portfolios - whether they be in traditional markets or non-listed private markets (or, increasingly, both) - requires a bedrock of global diversification to withstand sharp moves in prices, protect against inflation changes, and ensure that sources of returns are as uncorrelated as possible.

History suggests that most geopolitical shocks produce a spike in short-term volatility rather than a fat tail over the longer term. Research by Russell Investments shows that the median peak-trough drawdown in equity markets was only 4% over a roughly two week period, noting that those who stayed invested were rewarded. They argue that pulling back from risky assets is counter-productive.

Which raises the question: How do asset managers build conviction in such a way that they remain unflappable when uncertainty reigns?

Data and discipline define the edge

Part of this is undoubtedly the ability to develop strong investment ideas using wider, deeper data sets that enhance a manager’s research capabilities. AI tools are playing a key role in this, allowing managers to uncover investments in new markets and tap in to fresh sources of alpha. As well as an offensive role, AI is also playing a defensive role in respect to strengthening risk management frameworks by supporting more accurate predictive risk modelling and scenario planning.

As with everything in global asset management, it is not what the data is but how it is used that differentiates the winners from the losers. In this age of heightened geopolitical risk, performance dispersion is likely to widen between the top and bottom quartile managers.

One consequence of US policymaking, for example in respect to trade tariffs, is that investors are reducing exposure to US markets even though its equity markets have been extraordinarily resilient. Coupled with anaemic GDP growth in the UK and Germany (which only grew +0.2% in 2025), emerging markets are becoming more attractive, outperforming US equities “for the first time in a decade or more,” according to Michael Strobaek, Global Chief Investment Officer, Lombard Odier.

“We’ve seen fantastic performance. Earnings are strong. Interest rates are coming down. Fiscal policy is supportive. We’ve got a preference for emerging markets now,” said Strobaek at the firm’s recent Rethink Perspectives event in Zurich.

Oil prices have been the clearest example of how the Middle East conflict has impacted markets. Iran’s tollbooth control of the Straights of Hormuz saw Brent crude reach $116 a barrel on 5th May 2026. Prices have since dropped 8% to $98 on expectations that the US and Iran will agree a peace deal, but the effects have already been felt. In the US, inflation accelerated to 3.3% in March, its highest rate in nearly two years while in Europe headline inflation hit 3% in April.

The recent drop in oil prices offers some encouragement that inflationary pressures might reduce, but central banks are monitoring the potential for second-round effects, such as wage inflation as workers ask for more money to deal with the cost of living.

UBS recently wrote that its base case is the conflict would not lead to sustained global economic disruption, stating “we believe that investors should maintain a long-term focus, stay invested in broad equity indices, and use periods of volatility to build more diversified portfolios”.

Their house view is that the overall backdrop for equities remains positive, with robust US economic growth, strong corporate earnings growth, and high levels of fiscal spending around the world supporting a further 10% rise for the MSCI AC World from current levels by end 2026. Alongside more gains for US indices, we see further upside for Europe, Japan, China, and emerging markets in 2026, making a global equity allocation attractive, in our view.

Private markets gain appeal

While global equities may be attractive, they cannot avoid the whipsaw nature of listed markets. Contrary to the UBS view, MSCI’s Wealth Trends 2026 - How Advisers Are Repositioning for a Volatile World report, it found that the majority of wealth managers surveyed were significantly more likely to decrease US equity allocations. Instead, they are turning to private markets given the prevailing geopolitical and economic landscape. As Investment Week reported, 90% of wealth managers had concerns over tariffs.

According to MSCI's Wealth Trends 2026 - How Advisers Are Repositioning for a Volatile World report, the vast majority of wealth managers polled were significantly more likely to decrease US equity allocations and look to private markets due to the current geopolitical and economic landscape. Nearly three quarters of wealth managers (71%) expect to increase allocation private assets with 83% regarding private market solutions as “essential”.

In particular, non-U.S. family offices are seeking out opportunities in infrastructure to insulate themselves from rising geopolitical tensions, as well as private equity and growth capital. U.S.-based investors place inflation and interest rates as the more pressing issue according to the 2026 Global Family Office Report from J.P. Morgan Private Bank. U.S. respondents ranked interest rates (64%), inflation (61%) and economic growth (61%) as top concerns, followed by geopolitics (57%).

Jacob Manoukian, U.S. head of investment strategy for J.P. Morgan Private Bank said:

“What we see our most sophisticated family offices doing is constantly looking for opportunities that are a little bit more unique and a little bit more exclusive on the private side.”

The real test for investors is no longer whether geopolitics will disrupt markets, but whether their portfolios are built to absorb the shock. In 2026, the advantage is likely to sit with managers who stay globally diversified, act with conviction, and use uncertainty to sharpen resilience rather than retreat from it.

Discover the impact of geopolitics in asset & wealth management with 1,500+ leaders in the industry at FundForum, 22-24 June 2026.