By Steve Novakovic, CAIA, CFA, Managing Director of Educational Programs, CAIA Association
& John L. Bowman, CFA, Chief Executive Officer, CAIA Association
Stop three of eight on our world listening tour took us to Toronto. Even though our last roundtable in Los Angeles was only four weeks ago, it feels much further in the rearview mirror. It would be hyperbolic to say the world has completely changed since then, but the tone and focus of the conversation was distinctly different (interestingly, AI was barely even mentioned!). Today, we find ourselves in a world with more questions than answers, and that uncertainty permeated throughout our dialogue. If there was one area of conviction, it was that uncertainty isn’t going anywhere anytime soon.
The Toronto edition of our leadership roundtable convened approximately 15 CEOs, CIOs, and other senior investment professionals. These leaders represented some of the largest and most influential Canadian-domiciled asset managers, consultants, and asset owners globally. As expected, the discussion was dynamic and opinionated, reflecting the diverse views shaping today’s complex and deeply interconnected capital markets.
Questioning Everything
Despite our intent to look above the horizon in these roundtables, the conversation naturally began with reflections on the recent volatility in markets and shifts in global trade policy. While it's too early to determine the long-term structural impact, it's increasingly clear that we are witnessing another step toward deglobalization, polarization, and fragmentation.
Predicting long term regime changes in capital markets and the world order is a daunting task but a reality that leaders are increasingly considering. For example, is U.S. exceptionalism, including the dollar as the world’s reserve currency, approaching an end? Will the U.S. market remain a “safe haven?” Should investors now assign a higher risk premium to the U.S. and a lower one to Europe? How should we position portfolios to navigate these emerging paradigms? The consensus was that CIOs and CEOs should focus on identifying and monitoring early indicators that can offer insight into the direction of change.
Either way, participants voiced concern that diminished returns are inevitable when you shrink optionality and invest with more constraints. MPT would suggest that this means the efficient frontier may be shifting downward and to the right, implying more risk for less return. This is a stark departure with significant implications for portfolio construction and our risk models. Most of those models are rooted in 40 years of falling interest rates, muted geopolitical tension, and collective globalization and may be rendered obsolete.
However, one noted silver lining of this potential regime change is that, in an environment marked by increasing volatility and greater dispersion, it may offer expanded opportunities for alpha generation. While this may not fully compensate for lower beta returns, it increases the value of strategies that capitalize on market inefficiencies.
A Brave New World
As the world shifts toward a bi-polar or multi-polar dynamic, investors should anticipate higher average volatility, tail risk, and demand for liquidity compared to recent decades. This requires more creative and modernized approaches to building teams that can more easily adapt and transition across markets. In this environment, resilience, courage, agility, and strong communication skills become critical attributes for investment firms and teams. Multi-disciplinary “systems thinking” and lateral competency sets were also emphasized versus our industries tendency towards siloed expertise and vertical career paths.
Finally, an acceleration of M&A activity, particularly as private and public markets converge, could also exacerbate the power law. With fewer GPs and the aforementioned eroding returns, LP/GP relationships will become even more valuable to ensure access to the “front of the queue” of the most desired private markets strategies. The willingness to write a check, even a big check, is being replaced by a partnership mindset. LPs will need to solve problems and reciprocate solutions for GPs now as well. The voracious appetite of wealth management channels to access this new risk premia may also further undermine supply.
If there was one resounding consensus, it was this: the forty-year beta trade is over. In its place, skilled investors and well-trained teams, those capable of exercising judgment across strategies, will be more essential than ever.
Our next stop is New York in two months. It’s hard to predict how much more policies and markets will evolve between now and then. But if there's one thing we can count on, it's that we’ll arrive with even more questions than answers.
About the Contributors
Steve Novakovic, CAIA, CFA is Managing Director of Educational Programming for CAIA Association. He joined CAIA in 2022 and has been a Charterholder since 2011. Prior to CAIA Association, Steve was a faculty member at Ithaca College, where he taught a variety of finance courses. Steve started his career at his alma mater, Cornell University, (B.S. 2004, MPS 2006) in the Office of University Investments. In his time there, he invested across a variety of asset classes for the $6 billion endowment, generating substantial insight into endowment management and fund investing across the investment landscape.
John L. Bowman, CFA was appointed CEO for the CAIA Association in January 2025. He has devoted over 25 years to the asset management industry to recover the narrative of the value that the investment profession brings to society. He is a staunch public advocate for market integrity, long-termism, investor outcomes, diversity, human dignity and educational standards, as necessary ingredients to building a sustainable and healthy profession. John previously served as Managing Director for the Americas for CFA Institute, a region comprised of 40+ countries from Canada, the U.S., Central America, South America and the Caribbean. Before that, John was a portfolio manager for non-US equity strategies at both Boston Company and SSgA for several years. John is a prolific, speaker, writer and commentator, frequently keynoting industry conferences and appearing in investment and business publications such as the Wall Street Journal, The New York Times, Pension and Investments, Financial Advisor, The Independent, Wealthmanagement.com and CNBC. Bowman earned a BS in Business Administration from Mary Washington College and is a CFA charterholder.
Learn more about CAIA Association and how to become part of a professional network that is shaping the future of investing, by visiting https://caia.org/