Global shifts, AI risks & private credit resilience

After a whirlwind trip to Chicago for the CFA Institute’s annual conference, I returned with valuable insights into the global investment landscape and renewed appreciation for the forces shaping our industry.  

This year marked the CFA Institute’s first in-person annual conference since the COVID-19 pandemic. Set against the backdrop of Lake Michigan’s aquamarine shore and Chicago’s iconic skyline, it brought together investment professionals from around the world, including a South African delegation - one of the largest to attend the conference - to unpack the challenges and opportunities facing capital markets. 

The end of hyper-globalisation 

A dominant thread running through almost every session was the unprecedented level of uncertainty and volatility in global markets. Much of this stems from the erratic trade and economic policy signals coming out of the US, particularly recent on-again, off-again tariff threats from the Trump administration. 

Many speakers expressed concern about a growing trend towards an “imperial presidency” in the US, where key policy decisions are increasingly made by the President rather than institutions like the Treasury Department. This centralisation of power undermines predictability, fuels market anxiety, and raises the risk of a US recession - now estimated at 57%, up from just 20% at the start of the year. 

There was broad agreement that we’re seeing a structural break: the end of the era of hyper-globalisation. This raises questions about whether the US can continue to raise capital as cheaply as it has in the past. One presenter starkly concluded that America’s global dominance will erode over the next two decades, and that the international trust lost in recent years will not be easily rebuilt. 

In addition, there were three dominant themes that emerged throughout various presentations - each highly relevant to Futuregrowth’s investment philosophy and the South African context:

AI and machine learning is here and it’s BIG 

AI is here, it’s powerful, and the technology is now at a stage where it can be embedded into investment processes. But rather than replacing jobs in the near term, the message was that AI will enhance human decision-making by reducing the cost of prediction. The differentiator will be human judgement, which remains irreplaceable.  

Any time a human makes a decision, there is a two-step (unconscious) process at play: first, our brains assess the likelihood of various outcomes; second, we calculate the cost/benefit of each outcome and make a judgement as to the best course of action. To complete the first step, prediction is needed – this is where AI is getting better. AI is improving at the first step, but humans still have the edge on the second. And the view seems to be that this is where the new division of labour will occur. 

This lack of judgement by machines was well illustrated by Lynn Raebsamen, author of Artificial Stupelligence, who used the example of the 2013 flash crash triggered by a hacked Reuters Twitter feed. A false tweet that went out about a fire in the White House that had injured then-President Obama briefly wiped out $136bn of the S&P 500, due to automatic trades initiated by machines that lacked the ability to assess the tweet's credibility. 

The market impact was felt within minutes of the tweet loading and while the crash was temporary, it illustrates the point well. “We have given the steering wheel to a new breed of drivers,” as the author concluded. 

Speakers also highlighted how the nature of work will evolve alongside AI and machine learning. One speaker used accountants as an example: 40 years ago, much of their work involved manual arithmetic. With the advent of spreadsheets and computing technology, that task became automated. But rather than making accountants redundant, the role shifted toward higher-order tasks requiring judgement - such as interpreting and applying complex accounting standards like IFRS. The same principle is expected to apply in the AI era. 

The takeaway? AI won’t necessarily take your job - but someone using AI better than you might. While machines struggle with original thinking, empathy, trust, and creativity, AI was framed as a transformative invention with societal implications on par with the printing press. 

Private credit is a growing asset class  

Private markets are at a pivotal moment, with an estimated 15-20% of the global economy now residing in this space. Since the Global Financial Crisis (GFC), tighter banking regulations have made private credit more expensive and less accessible through traditional channels – paving the way for institutional and private wealth investors to fill the gap. 

The global surge in private deal flow mirrors what we’re seeing in South Africa. One consistent takeaway: private credit requires skill. Proper due diligence and deep technical expertise are key to discerning the good deals from the weaker ones. The point was made that manager selection is crucial – deep technical expertise and skill are what will differentiate the performing funds from the ones that will underperform. 

An especially resonant point was that the illiquidity in private credit “is a feature and not a bug”. This feature “forces” investors to stay invested during volatile periods, protecting them from impulsive decision-making. The consensus view was that the “forced holding” feature of private credit assets can help investors stay the course and that overall recovery and asset portfolio performance is better than one would get with the panic selling of listed, more liquid investments at the bottom of the market. 

Flags to watch: 

• The extended low default cycle since the GFC has largely been driven by central bank support – but that support could be waning. 

• We could be entering a new credit cycle, one that unfolds over decades rather than years.  

The extended period of low defaults has fostered some complacency and, with capital continuing to flood into private assets, rising default rates might be on the horizon – potentially placing pressure on returns.  

I also attended a session on “The Power of Exceptional Companies”, which offered insights relevant to private assets. The exceptional companies and deals worth paying attention to and investing in tend to share three traits: 

• Large (or multiple) market opportunities, often using cashflows from one to fund another. Extraordinary strategy, culture and leader(s).

• These leader(s) are often unorthodox in some way. 

• A clear, long-term vision with a focus on delivering sustainable results. 

Growth sectors include energy and electricity, with global demand expected to rise, especially as AI models require significant energy to train and operate. Anecdotally, Bill Gates is now the largest private farmland owner in the US, with a view to using this for energy security. Meanwhile, companies like Google and Amazon are buying all the power they can, even acquiring aluminium smelters to access long-term power contracts.  

Other areas of opportunity include the semi-conductor supply chain, infrastructure investment in emerging markets and luxury brands with strong pricing power. 

The broader conclusion: private credit is shifting. Return expectations are evolving, and the opportunity set is expanding. However, navigating this space successfully requires real expertise to manage risk and achieve the right return profile. 

Sustainable investing is here to stay 

Despite the shifting political narratives in the US around ESG and DEI, the consensus was clear: sustainable investing is here to stay. Investors remain focused on incorporating all risk metrics - including those arising from Environmental, Social and Governance (ESG) risks - into decision-making.  On one panel, US investment houses highlighted that, despite political noise, they remain committed to diversity as a core value with the belief that the best talent comes from all backgrounds.  

A striking data point from one session highlighted a major demographic shift: according to UBS Chief Economist Paul Donovan, $83 trillion will change hands over the next 20 years as Baby Boomers (born 1946–1964) pass on wealth to GenX (1965–1980). Governments will claim their share via taxes, but much of this wealth will end up in the hands of women, many of whom outlive their spouses. Estimates suggest $10 trillion will go to surviving wives alone. 

Since ESG tends to be a stronger priority for women investors, this wealth transfer reinforces the long-term relevance of sustainable investing. 

Hershel Harper and Mark Anson, the authors of two papers on ESG investing, affirmed the link between ESG factors and financial outcomes. They cited the California wildfires as an example of climate-driven financial loss – not just to those directly affected, but systemically through rising insurance premiums. These costs often hit lower-income consumers the hardest.  

Harper and Anson also warned that many investment managers still pay lip service to ESG integration, and that when assessing a manager, it’s crucial to see clear evidence in the analysis (both data points and ESG metrics) that demonstrates how these factors are genuinely incorporated into an investment decision. Linking to private markets (private debt and private equity), they echoed our Futuregrowth experience, where the bi-lateral nature of the funding arrangements in private markets allows for meaningful ESG engagement with disclosures and progress metrics built into transaction documents. 

Closing note: do we have a masterpiece? 

A standout moment was the “Art of Leadership” presentation by violinist Miha Pogačnik Naval, who used a Bach piece to illustrate how music mirrors the evolution of thinking, strategy and leadership in a company. He emphasised that a musical masterpiece is often transformational: when an orchestra plays, the collective effort creates something greater than the sum of its parts. He challenged us to ask: do our companies have their own masterpieces that inspire people to reach their highest potential? 

It was encouraging to see such strong levels of participation and a robust South African delegation at this year’s summit. I thoroughly enjoyed the experience - both intellectually and culturally. Before the conference began, I made time to explore Chicago: running along Lake Michigan’s scenic trails, catching my first baseball game at Wrigley Field, tasting the city’s famous deep-dish pizza, and even braving a cold plunge in the lake. 

To paraphrase a popular ad: 

Distance travelled: 28,000km 

Days away from home: 6 

Hours of presentations: 17 hours 45 minutes 

Strava activities logged: 17 

Learning and fun: Priceless 

More than just a trip, the experience affirmed the importance of staying curious, connected, and grounded in long-term thinking - values that remain central to how we navigate complexity at Futuregrowth.