Navigating the second half of the 2020s 

The past five years have presented unprecedented challenges and opportunities for investors. From extreme market volatility and geopolitical tensions to rapid technological innovation and climate change, the investment landscape is evolving at an accelerated pace. We believe it is imperative to try to understand these structural trends and emerging risks to build more resilient, forward-looking portfolios that seek to thrive in the second half of the 2020s and beyond.

This article distils our insights from the recent Mercer Global Investment Forum in Sydney on themes and opportunities shaping the investment environment. It considers the potential of portfolio construction, risk management, and strategic asset allocation, with the integration of sustainability, technology, and understanding the broader implications of heightened security considerations.

The last half-decade has been marked by extremes: the highest and lowest growth numbers in five decades, surging inflation unseen in 40 years, and geopolitical tensions that threaten globalisation^[i]. These factors can be seen to have contributed to eroding confidence in traditional institutions and active management, while simultaneously accelerating innovation in areas such as artificial intelligence (AI) and cryptocurrency.

The investment landscape appears to have been further complicated by environmental crises, including record-breaking heat and extreme weather events, which we believe are no longer distant risks but immediate threats to asset values and economic stability.

Investment themes today seem to be shaped by long-term “super cycles”ⁱ - extended periods lasting 10 to 40 years - that can influence economic, geopolitical, and social dynamics. Two current super cycles:

• Geopolitical tensions: Rising populism, trade conflicts, and armed conflicts which are reshaping global alliances and supply chains.
• Debt concerns: Expansive fiscal programs and surging debt levels which are creating economic vulnerabilities.

These super cycles interact with shorter-term regime changes, such as shifts in interest rates and market leadership, and can create a complex backdrop for investment decisions.

We believe a unifying theme emerging from the current environment is the importance of security - encompassing food, resource, energy, cyber, and border security. The interplay of geopolitical tensions, environmental degradation, and societal polarisation can underscore the need for resilience and self-sufficiency.

In our view, investors should consider how protectionist policies and strategic alliances affect supply chains and resource availability. The surge in protectionism, especially around critical minerals essential for the energy transition and technology sectors, may demand a reassessment of portfolio exposures and risk mitigation strategies.

We see environmental challenges as no longer being theoretical. Physical damages from climate change and biodiversity loss can represent existential threats to economies and portfolios. However, these challenges may also create investment opportunities in adaptation and resilience.

• Adaptation strategies - including investments in water infrastructure, flood management, sustainable forestry, and renewable agriculture.
• Circular economy principles - designing out waste, keeping materials in circulation and regenerating nature can offer pathways to resource efficiency and economical savings.

An example is the “world’s first upcycled skyscraper” in Sydney’s Circular Quay, which retained 98% of its original core and 65% of materials, saving over $100 million and a year of construction time^[ii].

Artificial intelligence appears to be permeating every sector, potentially driving productivity gains but also introducing new risks such as cyber threats. The rapid adoption of AI technologies is seen to be reshaping industries from data centres to agriculture.

• Data centres look to be a hot investment area, with exponential growth in data consumption driving demand for infrastructure.
• Agritech innovations, such as AI-enabled drones for precision farming, can improve resource efficiency and sustainability.
• Cybersecurity is a critical concern, with generative AI described as a “cyber risk superpower,” suggesting the necessity of robust operational and investment risk management.

We are seeing a continuing trend from public to private markets, likely to be driven by concentration risks in public equities and the potential broader opportunity set in private assets. In a recent survey^[iii], nearly half of large asset owners have increased private market allocations.

We see some key private market opportunities as including:

• Private equity secondaries and co-investments: Can help manage the J-curve and provide access to high-quality assets.
• Private credit including asset-backed finance: Which can offer attractive risk-adjusted returns and downside protection.
• Real estate: Despite recent challenges, may present opportunities for disciplined, opportunistic investors.
• Natural capital: Sustainable forestry and vertical farming may represent underinvested areas with strong growth potential.

Post-pandemic inflation appears to be under control, but the long-term trajectory remains uncertain. Inflationary pressures can include protectionist fiscal policies, government debt management, and supply chain disruptions. Conversely, disinflationary forces, such as the circular economy and AI-driven productivity gains, may counterbalance these.

Policy uncertainty looks to be at an all-time high, which can drive volatility and create opportunities for dynamic strategies like active fixed income and hedge funds.

The investment landscape of the late 2020s looks to be defined by complexity and rapid change. We are of the view investors should consider navigating super cycles of geopolitical tension and debt, while harnessing the transformative potential of AI, the circular economy, and renewable energy. However, security, in all its forms, is the lens through which these potential challenges and opportunities should be viewed.

By adopting a holistic, forward-looking approach that seeks to integrate risk management, thematic investing and active engagement, investors can look to build more resilient portfolios seeking to survive and thrive in this environment. 

^{[i] Themes and Opportunities 2025}

^{[ii] Quay Quarter Tower | Green Building Council of Australia}

^{[iii] Large Asset Owner Barometer 2025}