The ADFW Boardroom 2025 The State of the Global Economy

Ladies and gentlemen, thank you again for joining us today. Welcome to Abu Dhabi Finance Week and welcome to this power panel. My name is Dan Murphy from CNBC and I'm thrilled to be leading this session. Let's welcome our panel again. Oliver Bate is the CEO transforming Alians.

Claire Woodman, the head of AMIA for Morgan Stanley, Sergio Amotti, the architect of the new Swiss Super Bank, UBS, and Dylan Pa Srasera, who is steering the $434 billion portfolio at Tamarex. So, let's dive straight into the conversation. First, we're asking a really simple but really critical question and that is where is the growth and where is the risk? So a question for each of you as we come into 2026. How do you expect the macro landscape to evolve first from an economic perspective and an investment thematic perspective as well?

Oliver, I'll start with you. I

I thought we'd do ladies first normally, but uh I'll do this very briefly. I think we have 25 minutes. Um nothing will change the next year. We will be seeing a quite divided landscape. Politics are a mess.

Financial markets go from height to height as long as the money lasts. The question is when will that change? Not whether just when.

So we are taking a conservative stance on allocating capital at the moment.

Conservative. Okay. CLA your view.

Uh look um I do think that we will um see continued moderate global growth and I do think that that is going to be very positive for the for the outlook. I think that we will see continued slowing of inflation. Um but as Oliver said, we have to be very ali to a lot of uncertainties and um and because of that I think you see a massive distribution of views about how the outlook will play out. And obviously um we think that the US the US is a um a significant um you know dynamic and driver of how the outlook for 26 and 27 will play out and obviously we'll be focused on the strength of consumer demand and then obviously of course um what what impact do we see in the near term from AI and uh technology developments. Sergio.

Um biggest that you know I would say that most likely a continuation of what we saw in 2025. Uh two big questions open. Is the inflation going to come under control? Yes or no? And this is going to be very important to see particularly in the US if if the Fed is indeed able to cut as the market predicts.

I think that there is a risk there. Of course, the inflation is very sticky uh still and uh we need to see uh uh better numbers in order to really allow the Fed to go where the market expects. That would could be a a negative surprise if it's not the case. The second one is uh are we going to start to see some cash flows and and uh monetization of all these AI investments? uh and uh particularly I I think I would say uh you know it's uh important to understand if the non- tech industry will start to benefit really from that kind of uh evolution.

So um I would say yet again another challenging year ahead of us.

Dylan,

well I think first of all we're not a macro investor. We're a bottomup investor in companies. So equities is where we invest. I would say geographically you can't bet against United States right now. So still the a cynical part of our allocation goes to the US.

Um second I think you know surprising maybe to all of you is that we find opportunities in Europe. As I said we're not macro but you can find good companies in Europe which are globally competitive and we're allocating more to Europe. We do allocate to China and to India as well. China the Chinese market has done well in the last uh 16 months and I think you know we'll continue to do well into the new year as you can see the backlog from the IPOs and uh the going into China from outside of China as well as from uh within China and India's of course still strong uh 8.2% 2% growth rate is not to be scoffed at.

Uh the EP markets was a little bit wobbly this year understandably because of concerns over the US India trade issues. Uh but I think it'll sell itself out in in the next year. I think the one thing our investors will be thinking about is the balance between liquidity and illquidity and whether you're getting paid for the premium that you need to have for illquidity and hence for us uh the idea of making sure that for every dollar we invest half is liquid half is illquid becomes critical. Um, one of the things I would just say about the US that impacts those of us who are not dollar oriented where our currency is actually built in against the dollar is that the uh a weakening of the dollar does impact our returns. And what we've been doing in the last uh 6 months or 5 months is to actually hedge our dollar exposure.

But because the hedge costs have gone up to about 2.5 2.6%, we've now brought the hedges down. So the question that comes about is if hedge costs continue to go up whether we therefore reorientate our allocation towards a higher yielding uh portfolio to offset against uh the the hedge costs and therefore ensure that the net return uh is conventionary risk and so that's what we're thinking about right now. So let's stress test some of these views.

Ray Dalio told me this morning on my show that we are seeing the AI trade the innovation premium on Wall Street starting to look like a bubble. However, he also said that investors should not sell. So, how resilient is the premium that we're seeing right now for US assets? And are you seeing any cracks starting to emerge when it comes to the US exceptionalism story? Sergio, I'll start with you because you mentioned that earlier.

Well, there is uh this is as I said also I would totally share that view. um you know uh first of all I think this US exceptionalism is uh uh is really you know going at the border of uh you know potentially making things not so easy uh from an economic standpoint of view and and and you know of course I'm fairly concerned about this uh development but again I I think that it's I I wouldn't jump into the conclusion that we are now seeing a bubble in AI but for Sure. Uh I I think many investors will run out of patience in terms of uh just pouring cash into uh future potential cash flow and and eventually um again uh it's very important to see the implementation phase starting and the nonIT sector starting to benefit from it. Otherwise everything will stay abstract uh for too long and uh we still have a lot of v vulnerabilities in the system.

CLA can I get your reaction to that as well? How resilient is the strength that we've seen in US risk assets and the on the innovation trade? But there's still there's still there's still very broad-based demand and in fact um um our um excellent researchers forecast that out till 2030 there's probably about three trillion of demand for uh data centers and look here I mean we see that there's you know 6x of um growth in data centers because there is demand for faster processing and um and actually where we have highlighted areas as that we think will be big focuses and questions are actually around the availability of power to generate data centers. So I think the what we're calling the sort of the the intelligence factor labor power to um actually fuel the data center demand because the demand is there is where the uh the market will be very focused in the next um 18 to 24 months.

Oliver, let me get your reaction to that as well. What's your take on this? Because billions are being spent on AI infrastructure right now. Do you think 2026 is going to be the year when AI actually starts to deliver real world impact here? Headcount reduction and margin expansion.

Margin expansion. I don't know. But I want to react to what we've just said first. We are probably here one of the most conservative investors. So you may forgive me that along the value chain we'd rather invest in the shovels that is the grids the battery storing technologies just long before you talk about data centers you need the power to uh have the data center work and we don't see a lot of that coming yet.

You can already see that in the prices effectively data center capacity prices the implicit price of oil at $300. Right? So there is enormous price being paid today for energy and I don't see that being solved anytime soon. So there is a big issue between demand and supply and if you're on the right side of the energy production and the supply will be doing good. This is where we are spending some.

The second one, we already see AI in our industry. If I talk about insurance and asset management, particularly on the tech side, right? We already use 20 to 25% fewer programmers today. The issue is can it make it into the real economy as it's been predicted and there we have some doubts in terms of the speed by which it will arrive. Remember when we invented the light bulb, it took humanity 40 years.

Now, we've become a lot faster to adopt, but you need society to accept that. Let me give you an example. We have had self-driving cars now for 10 years, and they're perfectly safe, but humans don't want to use them, right? So, let's be a bit careful in terms of the optimism by which we will drive AI into everyone's life. Final question on this topic, and anyone can take it.

Will AI create more jobs than it destroys by 2030? Dylan,

what I hear you will AI create more jobs than it destroys by 30?

I think it's a question of sequence and time frame, right? Um look I if you think about AI today and the pace of AI um of the of the technology actually increasing significantly and the use cases uh you and you look at between agentic AI and adoption of AI for for revenue generation you know look at physical AI as example and so on there is of course a very significant risk that you will see job dislocation in some industries for sure the question is where will the job creation come from? So there will be an imbalance between where the jobs are lost and where the jobs are created. Now then the question comes as to whether you'll be able to create more jobs than the jobs lost even though you can't equate between the two. And the the thing about it is the speed at which this is going has not never been seen before.

In every other industrial revolution if I can call it that or tech revolution there has been enough time for you to be able to come up with job creation to offset the job losses. In this one, the speed of it actually may militate against the ability to react fast enough. And the fact remains that the opportunity to react fast enough to take care of those who are displaced actually acts a lot actually a lot with governments. and what kind of policies the government's put in place to actually help to reskill upskill workers who may actually find themselves uh in a situation where the jobs that they were trained for are no longer uh going to be relevant in an AI infused world and I think that's really the question

yeah maybe one point I think that you know in many countries we are facing two topics demographic trends taking you know basically having a lot of people leaving the job the labor markets And we need to create scalability and efficiency and productivity. So AI may help us to find you know the facto uh new new people and the new people are going to be agents are not going to be physical people. So the social cost in some cases is overly emphasized because we are struggling to find qualified people for certain jobs and we may need uh uh AI to enhance that uh dimension. The second one is uh you know a a big organization like ours we have between five and 7% uh attrition a year. So it how how you do it.

How you create the topic of AI replacing jobs is most likely going to be managed by managing the in and out in the organization in a different way that you did before. So for example, two people leaves, only one comes in and of course you are eliminating a job. But again, we would need to really uh face uh the topic of uh demographic shrinking the amount of people that wants to uh work in in our industry.

Would anyone else like to speak to this before I move on?

All been well said.

Happy to move on. Let's talk about geopolitics as well because as we look into 2026, of course, the Trump era, geopolitical play is still intact. That means trade wars, sanctions, and beyond. For my panel, what is the biggest geopolitical risk in 2026? Oliver, you could kick us off.

Yeah, I hope I'm wrong. That is an accidental war extension in Europe. So, I hope that for us uh being doicidal, I hope that Mr. Putin keeps his cool and doesn't do any more stupid things particularly in the Baltics. So that's what we are most worried about.

Yeah. So that we can get to a peace and that's not just a truce and a short-term ceasefire but that gets solved. That's the biggest risk for our short term because it impacts the world.

Well, that that obviously is a very serious um issue. Um I would just say that perhaps um perhaps on the slightly the other end of the spectrum is um just seeing trade and business friction as a consequence of geopolitics because we we really hope that Oliver is absolutely wrong. Um but I think it's more about friction and supply chains have been repurposed. Uh there's still a lot of work to do but I think it's the the frictions that we wouldn't want to see in the business cycle. So,

well, I I would echo Oliver. So, I think that the situation in Europe is very fragile and uh not to talk about history, but uh the first world war started with an incident and uh we are now playing with fire uh very close to the border of the net NATO and uh I hope some mistakes or incident don't trigger an escalation of this matter. I don't think Europe can stand it. But on the other end, I I also hope Europe realizes that this is the moment to wake up. You know, I mean the issue, how can we live in such a situation is quite remarkable and uh it's time to take control of its own destiny uh pretty soon.

So what's your message to European policy makers? Well, the truth of the matter, you can I mean Europe cannot just aim at being a big union in terms of economic uh uh ter in economic terms. Uh it needs to stand up as a geopolitical power and in order to do that you need to be able to defend your own uh borders uh independently of any other country. And this is not possible overnight. But over the next 10, 20 years, Europe should develop its own uh defense uh and its own uh uh capital markets uh in order to be able to really establish the euro potentially as a true uh alternative to any other currencies as a reserve currency.

Right now is not possible. And last but not least, one foreign uh policy voice. you can't have 27 countries uh opining on on foreign policy in this in the current environment. So it's very important to uh take control of uh uh its own destiny now tactically short term in a in the most appropriate way but long term you need to change a lot.

That's a really key risk. Thank you Sergio Dylan. What's your top geopolitical risk for 2026? So I I I tend to view Oliver and um Sergio, right? Hot wars are the biggest issue.

Now one of the things you should bear in mind is that between 991 and the onset of co the globalized world that we benefited from was based on two things. One is peace and prosperity and the second was an international rules based order that govern both trade and the way in which countries dealt with each other. These were the two pillars that actually led to uh three decades of peace of prosperity. the kind of treat that creates that all of us benefited from. Now on top of that now we have trade war effectively that combination of hot walls and the risk of there not being peace and prosperity and the trade war is going to put severe pressures of fiscal balances will put pressures on on countries having to deal with their domestic challenges and not just the crossber challenges and I think that if you look at from that perspective uh the geopolitical contestation whether it's between US and China or or other contestation could well arise is actually a a concerning thing and and the world the rest of us who are all in between are grappling with this okay it's grappling between the fact that we come to wars the US and China at the few biggest you know trading come countries of the world also have a role to play in trying to see whe whether the world can come into one of peace and prosperity again and that's the most tricky thing the other thing of course is that as we get more and more of these socks happening the the idea of protectionism nationalism populism ISM together with fracturing cross border and and in terms of relationships is becoming more of a reality domestic and even beyond and I think that concerns all of us who are investors.

Does the US China trade war change the investability of the Asian markets? Um I look you know at the end of the day uh it does to some extent because at the end you know if you want to create um value a lot of things come with it and one of which is cost of capital. If you want to allocate capital to emerging markets especially like in emerging Asia you got to do it against a cast cost of capital which allows you to get that spread and get a proper return on a riskreward basis. So trade wars do actually exacerbate that issue if you ask me. Um and so you know a much more equilibrium between US and China is actually very positive for Asia.

Let's talk about the investment outlook for the year ahead as well. We've spoken about the macro outlook, the economic outlook, key geopolitical risks to watch. Where's the opportunity to actually deploy capital and grow your AUM and grow your businesses? Olive, we'll start with you.

Yes, thank you for asking. Let me just pick up on Dylan. One of the reasons why I'm here is because many countries need to try to get out of this US China thing. So we have a strong interest in Europe to be independent as does the UAE as does have Japan as does have Korea. So my personal opinion is in the long run people will have to redraw the borders because neither we want to be bullied by any side and having to choose side and today that's very difficult because we cannot run our military in Europe without the United States but as Sedu says we have to.

So therefore I think it's very important for people that think about long-term asset allocation to think about partners to be being less bullied by any of the two. This will be a long journey but very important because we all have an indust interest to get out of that. That was the wakeup call. So I would invest in that. The second one I would invest in we have talked too much about AI US exceptionalism.

We go much deeper because beyond the index there in Europe companies that are doing exceptionally well that you will never get the performance of if you only invest in the ducks because the average will not give you the proper return. So it's actually the time to go back to proper asset allocation by finding the winners that will do well in a very very difficult world. Claire, highest conviction bet in 2026.

So look um we've we've I think we've done AI and tech. So uh let's knock that one off the list. Um I think what we're seeing when we analyze um uh corporate commentary is um more confidence in the business community. And so certainly I think we'll see a continued trajectory of uh global M&A year on year that's up 35% and we'll see that carry through to 26 and 27. Um so they're positive.

Um and of course we haven't really touched on uh private markets yet but um obviously in order to um finance um continue technology and AI we will continue to see growth in private markets. So I think they're just some of the areas but um um I I just would say coming back to Oliver's point again the reason we're here is look at the growth and diversification in uh the Mina region. I mean it's really quite impressive particularly what Abu Dhabi has accomplished over you know the last 10 years.

So well in this environment having eye conviction bets is quite you know difficult in my point of view. I have hard time to think about any asset class that is not fairly priced or overpriced. So my only conviction is that diversification is the only way to try to navigate this very complex environment. I would say that a healthy uh uh portion of cash ready to step in if you have some discontinuity in the markets is a quite a good strategy uh for the next 12 uh 24 months. But also on a positive note, I do believe that uh you know some of this technology, some of this innovation that we start to see will start to show uh results in terms of uh economic benefits you know particularly you know uh in in in in the efficiencies part of the equation.

I'm not so convinced yet on the topline dimension but for sure you know uh the frontto back processes of any large organization can be reshaped and that could create a little bit of uh tailwind to valuations and uh and and and earn it. But uh I would say the name of the game is diversification and I would be careful of having too high conviction on on anything right now. Very interesting. Dylan, what's your view? And on that, what do you think will be the best performing asset class of 2026

on a risk adjusted basis? Right.

Sure.

Um, look, I I actually think that if you're uh focused on how to invest in private credit and call plus infrastructure as diversifiers against equities, I think you can end up in a good riskreward equation. Okay. So, we're long on equities, right? because we have a 95% of portfolio is equity. So you want to diversify against the performance equities whether on private or public then I think you got to think about what is it that actually allows you to do so.

So in private credit you're further up the cap stack you know for a return that gives you a cash yield especially you focus a cash yield and the same thing core plus infrastructure right because underwriting cash shield and stable earning toward periods of time and uh especially if you're asset classes where they're long-term contracts which are bankable it helps you actually get to where you need to get to on a risk adjusted basis

okay very interesting to watch just on that because Clare mentioned what we're seeing in private credit right now cla maybe you can elaborate on this Jamie Diamond has said that there are cockroach approaches starting to emerge in the private credit space. It's been a really really hot asset class to be involved in over the last couple of years. Are you concerned about what you're seeing in private credit right now and if so why?

So look, yes, there's been a huge growth in the last 5 years in private credit and um of course everybody's focused and uh the priority has to be maintaining very high standards, underwriting standards and credit standards. So we have to um to focus on that and on the go forward that will be the priority and of course being transparent and early on. So I think the more transparency that private companies provide to investors I think that helps investors make um their um risk decisions about whether they want to participate or not and that's just will help the market and look the bank of England have announced that they're doing a big um systemwide exercise. So um it will be interesting to see what the results of uh that are too.

Anyone else wanted to make a point on private credit before we wrap the conversation up? Be the only I mean the scope and the need for private credit is definitely uh undisputable. So the topic is that the growth that we saw in the last few years has been remarkable and but we haven't seen an economic downturn that's uh proved uh you know the the resilience of the system and to me the real topic will be uh uh you know probably more discovered during a you know a market uh uh I would say an economic downturn will probably allow us to really understand how solid is market, but we shouldn't really dispute the need of private credit. It's more about how transparent is done and how valuations are aligned between public market and private credit markets.

Okay. Unfortunately, we are out of time. So, we'll have to leave it there. Ladies and gentlemen, please thank my panel again and thank you for watching on today.