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‘Economist Impact’ report sponsored by Xtrackers by DWS examines growing importance of geopolitical risk for institutional investors
7/1/2025
The report explores how institutional investors are rethinking risk amid rising geopolitical tensions, and how they are reshaping capital flows and portfolio design in response
The report is based on a global survey of 300 institutional investors from North America, Europe and Asia—including pension funds, insurers, sovereign wealth funds, endowments, family offices and government agencies—conducted in April and May of 2025
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Xtrackers by DWS is sponsoring the report “Friendvesting: The new architecture of investment in a fractured world” by Economist Impact. The report emphasizes that geopolitical factors including military conflicts, sanctions and long-term changes such as trade barriers are increasingly influencing investment decisions. Equities and bonds in particular react quickly to political developments, forcing fund managers and investors to rethink old assumptions about risk and return. “Friendvesting” or investing alongside allied geopolitical groups with shared economic and strategic interests, will be a central strategy for institutional investors in 2025. Please find the key findings of the report below:
The age of friendvesting
Institutional investors no longer treat geopolitical strife as background noise. War in Ukraine and the Middle East, tensions in the Taiwan Strait and tariff threats from Washington have turned geopolitics into a central variable in portfolio construction. Our survey of 300 global investors shows a shift from viewing geopolitics as episodic to seeing it as structural—reshaping where capital flows, how it is allocated and how it is managed. The emerging pattern is friendvesting: aligning capital with jurisdictions where geopolitics is less intrusive and avoiding—or at least hedging against—any rising risks.
Entanglement, not just location
Friendvesting begins with geography: twothirds of investors say that it is the principal way geopolitics shapes their portfolios. For real assets—ports, pipelines or property—location is fate. But in most cases, investors are less concerned with where an asset is booked than with how it is exposed to geopolitical risks that move along geographical seams. In equities, the question is not whether a firm is listed in Boston or Beijing, but whether it relies on suppliers, customers or operations in volatile jurisdictions. The new geography of capital is defined less by proximity than by dependence.
Asset classes and the shape of risk
If geography sets the bounds of friendvesting, asset allocation gives it form. Different assets carry geopolitical risk in distinct ways. Some transmit it openly; others mask it until trouble erupts. Bonds hinge on legal enforceability; equities reveal operational entanglements; and real assets are vulnerable by virtue of physical immobility. For investors, the task is to grasp how each asset absorbs and transmits geopolitical tension. That is made harder by the unreliability of traditional risk metrics when international strife intrudes.
Sectors in the firing line
Geopolitical risks cluster unevenly across sectors. Some industries lie closer to the fault lines, vulnerable to sanctions and regulatory barriers. Our survey puts technology, energy and defence at the forefront, yet the specific contours of exposure shift between countries. Investors are interrogating what each sector signifies—how it is perceived, politicised and potentially weaponised.
Bureaucratisation of the unpredictable
Quantifying geopolitical risk remains elusive. Nearly half of investors cite forecasting fog as their top challenge. Sanctions and tariffs are hard to model; wars erupt without warning. Institutional responses are diverse: some firms create cross-functional risk committees, others outsource to consultancies staffed by former diplomats. Hybrid investment models —combining passive exposures with dynamic hedging— are gaining favour, offering both stability and responsiveness.
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