Read: Uncertain market conditions pushing institutional investors to fixed income, international equities: expert

The current level of economic and geopolitical uncertainty will likely persist in 2026, as evidenced by the recent developments with Greenland.

Managing this uncertainty is the No. 1 priority for pension investors. Their portfolios need to be agile and resilient to withstand shocks to the world economic order.

This means revisiting the funds’ decision-making processes that aren’t designed to handle regime shifts. Scenario analysis is a promising tool to model complex scenarios and simulate their impact on the portfolio. The main weakness is that scenarios are often subjective and ad hoc — and if investors focus too much on negative scenarios or design overly conservative strategies, they lose their ability to generate returns and stay afloat over the long-term.

Becoming more agile also requires revisiting the funds’ governance processes. Most institutional investors use the strategic asset allocation framework. This often sets up rigid decision-making processes where asset allocation targets are set by the board and reviewed annually, leaving management teams with little bandwidth to maneuver around these targets. Becoming more nimble means either increasing asset allocation bands,........

© Benefits Canada