July 6, 2022



Will Goodhart: Fiduciaries need to get to grips with unmeasurable risk

2 min read

In the weeks following Russia’s invasion of Ukraine there has been swift and vast developments that have impacted investment firms and trustees. Indeed, the introduction of stringent sanctions and the closing of the Russian market has led to fund suspensions and proclamations from firms about their Russian investments and what they plan to do with them.

According to Goodhart, all this has reminded the investment industry of  “the reality of political risk and that perhaps that political risk can be more significant and realised more frequently than it has in the past,” the CEO said.

Goodhart went on to say that investment managers will need to consider investments within other regimes “that are perhaps not democratic” and consider “how to address those”.

He added that from a fiduciary perspective trustees “will probably be wanting to look at, and reconsider, geopolitical risk within portfolios and the potential implications of that”.

Some of that activity has perhaps already started as China saw “unprecedented” daily outflows following the invasion, according to data from the Institution of International Finance. 

IIF researchers said: “Of course, at this stage it is too early to say if the war is driving outflows or if other factors are to blame. But we think these outflows are notable enough to at least raise the possibility that Russia’s invasion of Ukraine may be pushing global markets to look at China in a new light.”

Goodhart said looking at geopolitical risk will mean fiduciaries will have to get used to thinking about managing uncertainty as well as risk. 

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“In the past, fiduciaries have sometimes been comfortable sort of considering measurable risk,” Goodhart explained. “The problem with that is measurable risk is usually backward looking so it is difficult to assess.

“Fiduciaries will have to come to terms with the fact that we live in a world defined by uncertainty rather than defined by measurable risk.”

Goodhart added there could be similar debates as there have been around ESG divestment and whether or not engagement would lead to positive change.

“This question of sovereign stewardship is one that we are all going to have to consider more often and more deeply,” he continued.

He acknowledged this kind of stewardship is “difficult” and noted he was unsure whether investors that hold government bonds could speak to debt offices in countries and make their views heard.

The CEO said CFA UK is at the early stages of thinking “the longer term ethical and professional implications from a standards perspective” of the crisis.

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