In an increasingly interconnected world where the micro- directly influences the macro-, the investment management sector must focus more on understanding regional politics, says geopolitical expert John Hulsman.
In a recent video interview filmed at FundForum Middle East 2015 in Dubai, Hulsman claimed that firms needs to focus on two things when considering their global presence: economics and politics. By nature of the industry, firms already have a solid understanding of macro-and micro-economics, but politics are inextricably linked to economic trends, and without a solid understanding of how current political situations affect the world, asset management firms cannot hope to succeed in an increasingly interconnected world.
"[Firms] are already doing economics right, but politics make the world go around. If you don't understand [politics], you won't go anywhere. You can't separate the political from the economic."
Hulsman says that it's a mistake for big firms to focus only on institutions - like the EU and OPEC - and the superpowers - like the US. Regional powers matter more and have a much larger influence on world events than they are commonly given credit for.
"The Cold War was checkers - two guys moving pieces around a board. We're now living in a world of three-dimensional Chess. Regional powers matter more."
"The big players don't matter as much as everyone thinks they do. The United States and what they do is secondary. Frankly, even what happens in Iran and Saudi Arabia is secondary. It's what happens within Syria that matters."
So how does all this affect asset allocation in real time? With the political and the economic being so inextricably linked, Hulsman believes that politics is part of the overall equation. And if you leave out one of the key elements of the equation, you'll get the whole formula wrong.
"Look at China. That's where the golden egg is currently being laid, but it's also the area of the world with less multi-lateral institutions and with more risk. A drunken sea captain this morning in the South China Sea shooting over a Chinese ship could start WWIII. Very easily. You can very easily play a war game that ends in that situation. Gaming out those situations to see what is going on in India, Japan, China, South East Asia and putting that regional focus together is absolutely vital for asset allocation."
John Hulsman is a regular guest at FundForum events where he plays wargames for the asset management sector. Click here to read John's thoughts at one of the recent wargames played at FundForum International 2015.
You can watch the full interview with John Hulsman and George Triplow, MENA Wealth & Asset Managment Leader, EY, by clicking on the image at the top of the article.