In the years since the Covid-19 pandemic, politics and pensions have begun to overlap in ways that are reshaping how chief investment officers (CIOs) approach their roles. No longer confined to portfolio theory, risk hedging, and market cycles, CIOs are now navigating a landscape where government agendas, political tensions, and even global power dynamics directly influence capital allocation. The era of assuming political turbulence is temporary and inconsequential may be coming to an end.
Governments Step into the Investor’s Chair
In Australia, the Albanese government has taken a clear interest in superannuation funds, encouraging them to channel capital into nation-building projects such as affordable housing and renewable energy. While policymakers frame these as opportunities to align long-term savings with national development, the pressure raises questions about fiduciary duty.
Mercer Pacific CIO Kylie Willment notes that while it is “quite natural” for governments to consider the potential of superannuation, such interventions should ideally come through market incentives rather than mandates. “We’d rather it happen through good opportunities and incentives than through compulsion or targets,” she said. For CIOs, the balance between supporting economic priorities and protecting member interests is delicate.
The UK offers a parallel case. Under the Mansion House Accord, 17 pension funds voluntarily agreed to allocate at least 5 percent of their private assets domestically. Meanwhile, in the US, environmental, social, and governance (ESG) strategies have become politicised battlegrounds, caught between progressive mandates and conservative pushback.
The shared theme is unmistakable: governments are no longer passive observers of institutional capital. They are active stakeholders, shaping the frameworks that dictate where trillions can flow.
Fiduciary Duty Meets Political Will
The shift raises complex issues for CIOs. Superannuation trustees and pension fund leaders operate under fiduciary obligations to maximise returns in the best interests of members. Political agendas, even when framed as national imperatives, can conflict with diversification strategies or risk-return profiles.
Willment highlights this tension, pointing to the danger of restrictions that might limit diversification or clash with the financial duties owed to beneficiaries. “You don’t want targets that restrict the ability to diversify globally,” she warns, especially in a market where resilience depends on spreading risk across geographies and asset classes.
Erosion of Confidence in U.S. Exceptionalism
Beyond local politics, global power dynamics are forcing CIOs to reassess long-standing assumptions. Mercer’s Global CIO Hooman Kaveh points to what he calls a “slow, gradual decline” in confidence in U.S. exceptionalism—the idea that U.S. institutions and markets provide unmatched stability.
The politicisation of the Federal Reserve, questions over governance, and turnover in key regulatory roles have shaken investor trust. Even the U.S. dollar, long considered unassailable as the world’s reserve currency, is showing signs of strain.
Gold’s 30 percent rise over the past six months is telling. This surge is not tied to inflationary fears—future inflation expectations remain steady—but rather to diversification away from the dollar. The supposed risk-free anchor of global markets, U.S. Treasury bonds, is also facing growing scrutiny.
Valuations and Market Concentration
Politics is not the only concern. U.S. equities remain highly concentrated and arguably overvalued. The so-called “Magnificent Seven” technology giants now represent about 40 percent of the S&P 500’s value, while the U.S. market as a whole accounts for around 70 percent of the MSCI World Index.
For Mercer Super, this concentration is reason enough to maintain a “modest underweight” position in global equities. Willment expects some retracement in valuations and foresees a long-term diversification trend away from U.S. dominance. Still, she acknowledges that U.S. markets will remain central to global portfolios, if somewhat less commanding than in the past.
CIOs as Risk Managers, Not Stock Pickers
The changing environment underscores a transformation in the CIO role itself. Where once CIOs were expected to make direct stock-level decisions, today they function as managers of teams, processes, and risk systems.
“I spend a lot of time thinking about the risks in the portfolio and what could happen,” Kaveh says. His approach reflects a shift from decision-making to oversight—encouraging bold calls from teams while monitoring guardrails to ensure resilience against downside scenarios.
This reorientation reflects the growing complexity of markets. Algorithmic trading, automation, and interconnected asset classes mean markets move faster than they did two decades ago. CIOs must think in terms of scenarios and systems rather than individual securities.
Sophisticated Tools for a Complex World
One of the clearest changes in institutional investing is the rapid expansion of risk management infrastructure. Mercer’s Large Asset Owner Barometer shows that funds are investing heavily in risk systems, data management, compliance, and talent. The goal is simple: manage uncertainty in a world where geopolitics, climate shocks, and market dislocations intersect more often.
Kaveh points to the growing use of gold allocations and tail-risk hedging strategies—tools that were rarely considered 20 years ago—as examples of how institutional investors now build resilience into portfolios. “It’s definitely a more sophisticated world,” he says, noting that strong governance and risk frameworks have protected many institutions from past market turmoil.
Willment echoes this sentiment, emphasising that building out diversification and private market exposure demands more sophisticated tools. “The world is more uncertain, and portfolios are more complex,” she says. “You need the capability to support the best decision-making in an inherently uncertain future.”
Actionable Takeaways for CIOs
The convergence of politics and investment presents practical implications for CIOs and their teams:
- Scenario Planning for Political Risk
CIOs should embed political scenarios into risk assessments. Whether it is tariffs, government mandates, or shifts in reserve currency dynamics, these events can no longer be dismissed as temporary noise. - Balancing Fiduciary Duty with National Priorities
Funds need to articulate clear frameworks for engaging with government agendas. This means supporting nation-building projects when financially viable, but also drawing firm lines where mandates could harm member outcomes. - Diversification Beyond the U.S.
While U.S. markets remain indispensable, CIOs should prepare for gradual diversification. This includes greater exposure to emerging markets, private assets, and regional opportunities aligned with long-term growth. - Investing in Risk Infrastructure
Modern portfolios require advanced risk systems, real-time data, and governance models capable of managing fast-moving disruptions. CIOs who underinvest in these areas will struggle to protect capital in volatile times. - Cultural Shift in Leadership
CIOs must embrace their evolving role as leaders of teams and processes rather than stock pickers. Encouraging innovation while maintaining guardrails is central to navigating today’s complexity.
Looking Ahead
The assumption that markets ultimately shrug off politics is becoming harder to defend. From Canberra to Washington, politics is not just influencing markets—it is reshaping them. CIOs who once dismissed political turbulence as background noise now face a new reality: politics is part of the investment landscape.
For CIOs like Kaveh and Willment, the challenge is not to predict every political twist but to build resilient systems and portfolios that can adapt. The overlap of pensions and politics is here to stay, and it may be the defining test of institutional investing in the post-Covid era.
