The article  was first published on OMFIF on  Oct 17th, 2025.

Jahangir Aka is Founder of Aka & Associates.

Investors are recalibrating their exposure to the US

The events of 2 April 2025 – when the US introduced new tariffs on its global trading partners – sharpened investor focus on portfolio concentration and capital flows. For more than a decade, US markets delivered compounding gains across equities, fixed income and private markets, leaving global portfolios overweight to a single engine of growth. The post-2008 financial crisis cycle, turbocharged by mega-cap technology and artificial intelligence names, meant diversification became harder to achieve.

Liberation Day has accelerated what was already overdue: a normalisation of allocations. Conversations with sovereign funds, public pensions and leading general partners point to three clear themes shaping decisions today.

Normalising US allocations

Since 2009, the US has dominated returns across asset classes. Allocations drifted well beyond strategic anchors, reinforced by global capital chasing scale and liquidity. By 2024, the top 10 US companies alone accounted for over 35% of the S&P 500, while the ‘Magnificent Seven’ defined both passive and active outcomes.

A global passive strategy no longer offered genuine diversification, creating a paradox for allocators. Active equity strategies struggled too – underweighting mega-cap tech meant underperforming, while overweighting it meant paying active fees for beta exposure.

Today, allocators are not abandoning the US but recalibrating exposure. The focus is shifting to harvesting beta efficiently while seeking alpha elsewhere. For public markets, this means renewed scrutiny of factor exposures, governance risk and the liquidity premium. For private markets, it means questioning whether illiquidity premia remain justified as public markets regain appeal.

Europe, the UK and Japan emerging as beneficiaries

With China constrained, India increasingly crowded and Southeast Asia still lacking scale, attention is turning to developed markets long underweighted in global portfolios. Europe, the UK and Japan are emerging as pragmatic beneficiaries of the rebalancing (Figure 1).

Flows over the past year already point to renewed allocations. For many sovereigns and pensions, these markets offer a mix of diversification, governance stability and sector opportunities not available elsewhere. Japan, in particular, is benefitting from corporate reform and foreign inflows.

Importantly, this reallocation is not about chasing short-term dislocations. It reflects a structural view that portfolios need balance across multiple regions – and that investors cannot afford to rely on a single source of growth and liquidity.

Private capital fundraising under pressure

Private markets have entered a new phase. After nearly a decade of uninterrupted growth, fundraising peaked at $720bn in 2021, before falling to $560bn by 2024 – a decline of more than 20%, the sharpest slowdown since 2016 (Figure 2).

Rising rates, slower distributions and a more selective limited partner base have changed the fundraising landscape. Large global platforms continue to attract commitments, but mid-market managers face longer cycles and higher hurdles to secure anchors. The balance of power has shifted: LPs are pushing harder for co-investment, greater transparency and more aligned economics.

The implications are far-reaching. For GPs, it is no longer enough to point to performance alone. Credibility, access and adaptability will determine who survives this cycle. For LPs, dispersion across vintages and managers means that manager selection is as important as asset allocation.

Rebalancing the global portfolio today is not about abandonment – it is about balance. Allocators are diversifying away from an outsized US exposure, rediscovering opportunities in Europe, the UK and Japan, and demanding more discipline from private capital managers.

This is adaptation: to markets, to politics and to evolving investor expectations. For sovereign funds, public pensions and long-term investors, the challenge is not simply to optimise returns, but to build resilience in an increasingly multipolar world.