Istanbul, Trust, and the Discipline of Long-Horizon Investing

 

I have just come back from Istanbul.

Istanbul is unforgettable, in part due to its geography. Europe and Asia face each other across the water, close enough to feel connected yet distinct enough to highlight that borders, systems, and identities are less fixed than we often assume.

The warm weather and vibrant city life made it impossible to ignore Istanbul’s many layers: old empires, modern infrastructure, religious history, financial ambition, and daily activity all coexist. It was an apt setting to discuss an increasingly complex world.

Although the conference focused on sustainable finance, my main concerns were broader: trust, fragmentation, and the responsibilities of long-horizon investors.

One of the opening questions was deceptively simple: beneficiaries trust us completely, yet often understand little of what we do on their behalf. What does it truly mean to earn that trust?

I think about that question a lot.

For asset owners, trust is not earned through sophistication, elaborate models, or fashionable themes. It is built on a decision-making process that remains true to the capital’s purpose, especially in challenging environments.

That means starting with the mandate.

While this may seem obvious, many investment processes drift from their original mandate. Benchmarks often overshadow liabilities, peer comparisons replace first principles, and risk is defined by what is easy to measure rather than what is important. Over time, institutions may excel at explaining relative performance but lose clarity on whether the portfolio aligns with its intended purpose.

That is one of my biggest concerns today.

Benchmarks provide discipline, transparency, and accountability, but can become substitutes for critical thinking if not clearly linked to the mandate. For long-horizon funds, the key question is not just whether the fund is outperforming its benchmark, but whether it still reflects the fund’s purpose, liabilities, risk tolerance, liquidity needs, and governance capacity.

This becomes even more important in a fragmented world.

A panel addressed the emerging multipolar order. I view multipolarity not as a final state, but as a prolonged, uneven, and unstable transition with competing systems. Capital, regulation, technology, supply chains, data, energy policy, and geopolitical relationships are all being reconfigured at once.

For a global asset owner, that matters.

This matters because beneficiaries may be global, yet the investment environment is becoming less integrated. Regulation may diverge, data may localise, technology stacks may separate, and currency blocs may gain importance. Political risk could emerge in previously stable regions. Diversification may also behave differently if correlations increase during stress or markets fragment along geopolitical lines.

This is why I continue to believe that external forces matter.

Not every external force becomes an investment thesis or portfolio response. However, some structural forces are significant enough that ignoring them is itself a decision, not neutrality.

Forces such as inflation regimes, real-rate shifts, fiscal pressure, geopolitical fragmentation, climate migration, demographic changes, energy security, and technology controls can reshape the opportunity set. They influence which risks are rewarded, which are diversifying, which assets remain liquid, and which assumptions no longer hold.

That is where scenario analysis becomes important.

Scenario analysis is not a forecasting exercise. It does not assume we know the future. Its value lies in prompting institutions to assess whether their portfolio, liquidity plan, governance, and risk appetite remain appropriate under various possible conditions.

An effective scenario analysis process is not about creating impressive documents, but about enhancing decision readiness.

If inflation stays higher for longer, what breaks?
If liquidity disappears at the same time that capital calls rise, what happens?
If the safe asset is no longer safe in the currency of the liabilities, what is the real liquidity buffer?
If geopolitical fragmentation changes market access or capital mobility, where is the hidden concentration?
If the board needs to act quickly, does the governance structure allow it to do so?

These are not abstract questions; they are central to portfolio construction.

My actuarial, risk, and quantitative background informs my perspective. The actuarial lens focuses on promises, uncertainty, and time. The risk lens considers potential failures and institutional resilience. The quantitative lens provides tools, but also highlights that every model relies on assumptions.

And some assumptions are useful even when we know they are imperfect.

Expected returns, risk premia, discount rates, correlations, volatility, liquidity horizons, and regime definitions are not given; they are estimated and debated. We use them to make decisions, but must remember they are structured judgments, not facts like prices.

That is why governance matters so much.

Investment organisations often view governance as simply a committee structure, but it is more than that. Governance transforms uncertainty into action by defining authority, relevant information, dispute resolution, decision speed, and the institution’s ability to act with discipline.

A strong total portfolio framework is more than an asset allocation model; it is a decision architecture.

It connects the mandate to the risk target, the risk target to the reference portfolio, the reference portfolio to capital deployment, capital deployment to liquidity, liquidity to governance, and governance back to the mandate.

If any part of this chain is weak, the portfolio may still look sophisticated, but the institution becomes vulnerable.

Liquidity is a good example.

Liquidity is often discussed as an asset property: some assets are liquid, others illiquid. While true, this is incomplete. For asset owners, liquidity must be defined relative to the fund’s obligations, the currency of those obligations, and the timing of cash needs.

Even the idea of a risk-free rate becomes less obvious once the liability structure is taken seriously.

If benefits are paid in U.S. dollars, U.S. Treasuries may be a reasonable reference point. But if liabilities are paid in another currency, U.S. Treasuries are not automatically risk-free from the institution’s perspective. They may still be high-quality assets. They may still be useful. But they introduce currency risk relative to the obligation.

This distinction is important because the definition of risk-free shapes how we measure risk premia. Asset allocation is ultimately about deciding which risk premia to own, and in what size, within a defined risk target. If the reference point is incorrect, risk premia may be misinterpreted, and allocations may drift from the mandate.

While technical, this is fundamentally a governance issue.

The same is true of sustainable finance.

At the conference, I referenced Migration and Displacement in a Changing Climate. The book reminded me, as I experienced at CPP Investments, that many critical investment questions lie at the intersection of science and humanity.

In finance, climate change is often framed in terms of emissions data, transition pathways, physical risk models, and disclosure frameworks. These are important, but migration and displacement highlight the human and institutional dimensions. Physical change leads to social pressure; environmental stress creates fiscal challenges; and climate risk translates into risks to housing, labour markets, infrastructure, insurance, food security, and political stability.

As such, sustainable finance should be integrated into portfolio construction. If it is important, it must connect to the mandate, scenarios, liquidity, governance, and the institution’s resilience.

Otherwise, it remains rhetoric rather than discipline.

My main takeaway from Istanbul is that long-horizon investing does not require additional complexity. It needs a better structure.

It needs the humility to recognise uncertainty, the discipline to begin with the mandate, the technical depth to understand risk premia, liquidity, currency, and model assumptions, the governance capacity to act when action is needed, and the humanity to remember why the capital exists in the first place.

That, to me, is the real work of institutional investing.

Not just to build portfolios that can perform.
But to build decision systems that remain trustworthy when the world changes.