Five Insights on Navigating Innovation and Resilience

Uncertainty is familiar to investors. What is different today is the speed of change and the difficulty of folding it into portfolio decisions. Ashley Lester, MSCI’s chief research & development officer, described the challenge as balancing the two fundamental pillars of long-run returns: institutions and technology. Fiscal burdens and shifting political norms are testing bond markets, while AI is reshaping equity growth prospects. “Juggling these fundamental forces and allocating across public and private markets requires new thinking in risk and portfolio management,” he observed.

As Sonja Laud, CIO of LGIM, put it: “Trying to forecast anything right now is senseless; preparation and scenario analysis is key.”

Takeaway: CIOs cannot rely on linear forecasts. Building resilience means testing portfolios against a spectrum of scenarios, from macroeconomic shocks and geopolitical tensions to liquidity strains and technology-driven disruption, and ensuring portfolios can adapt across public and private markets.

AI is moving quickly from pilots to practice. Investors see it as the most effective scalable way to process today’s volume and complexity of data. While AI-related stocks have surged,¹ some CIOs argued that the long-term winners may not be the innovators building the tools, but the companies and allocators who deploy them effectively to sharpen decisions and widen margins. 

One CIO described running an “AI brain” strategy since 2019, with most stock selection driven by the model but humans providing judgment where the model falls short. Others pointed to practical uses in monitoring exposures, drafting commentary and automating reporting. At MSCI, AI is already reshaping what is possible, from scaling geospatial datasets by more than 40 million assets to helping investors surface key indicators faster through AI Portfolio Insights. Looking ahead, some expect AI to eventually stitch together structured and unstructured data in ways that blur the lines between quantitative and fundamental analysis.

Takeaway: AI is not replacing judgment, but it is changing how judgments are made — faster, broader and with new dimensions of insight.

Allocations to private markets are climbing, with some institutions now allocating over 50% of their portfolios to private assets. But growth has brought strains, especially around liquidity and valuation. Delayed distributions in private equity are expanding the use of secondaries and semi-liquid vehicles, while private credit, now roughly a USD 1.6 trillion market, is emerging as a potential diversifier.

Valuation remains one of the thorniest challenges. Because private market performance data is smoothed and lagged, it’s difficult to compare strategies or run attribution. “Investors need transparency across asset classes and a consistent framework for evaluating all dimensions of risk,” said Luke Flemmer, head of private assets at MSCI.

Takeaway: Private assets are now essential, but blind spots remain. Investors need unified frameworks that bring transparency and consistency to liquidity, valuation and attribution across strategies to build confidence in portfolio decisions.

Physical risk has shifted from a future concern to a present financial driver. Extreme weather events, nature-related risks and trade tensions are intensifying, seeping into portfolios, loan books and insurance markets, and creating material financial impacts. “Physical risk is systemic, it’s affecting every asset across the world in some way, it’s nonlinear and it’s rising,” said Richard Mattison, MSCI head of sustainability and climate.

MSCI analysis shows that chronic hazards such as heat and acute events such as storms and floods could cost the largest listed companies globally USD 1.3 trillion in the next year through asset damage and lost revenue. Exposure is highly localized, with facilities and supply chains often more vulnerable than disclosures suggest. Insurance markets are responding with higher premiums and shrinking coverage, adding another layer of risk for the financial system.

Takeaway: Physical risk is no longer hypothetical. Incorporating asset-level hazard data, adaptation strategies and the cost of insurability into investment frameworks is becoming a much larger piece of the portfolio-management puzzle.

As correlations weaken and private allocations swell, traditional allocation frameworks are falling short. CIOs stressed the need for total-portfolio approaches, cross-asset risk budgeting, liquidity modeling and integrated analytics that span public and private holdings. 

The risk function itself is also shifting. Once seen mainly as oversight, it is increasingly part of the investment engine. As Jorge Mina, global head of analytics at MSCI, explained: “The firms that succeed are those that integrate a risk culture directly into the investment process. Risk isn’t just compliance — it’s a driver of performance, shaping position sizes, capital allocation and the robustness of decisions.”

Takeaway: Resilience requires a total-portfolio perspective. Breaking down silos allows investment and risk teams to capture interdependencies, manage liquidity and prepare more confidently for the next shock.