Even as inflation abates, other risks remain elevated – geopolitical tensions, financial stability concerns and, potentially, an elevated risk of recession. This is a challenging environment for investors and one that may warrant a rethinking of defensive allocations. 

A year ago, high inflation was a novel phenomenon, with uncertainty about its persistence. However, despite falling, inflation is likely to remain elevated compared to the previous decade. We examine how sovereign investors are navigating an altered macroeconomic environment, marked by persistent inflation and higher real interest rates.