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Tina Fordham is the founder of Fordham Global Foresight and has been a geopolitical risk analyst for investors for almost 25 years, including 17 years at Citi where she was chief global political analyst and previously as head of global political risk at Eurasia Group.
Cometh the crisis, cometh the armchair experts. Whether it is debt crises, pandemics, vaccine efficacy, invasions or bank failures, the Dunning-Kruger Effect — the inverse relationship between knowledge and confidence — comes instantly to the fore.
It was therefore only going to be matter of time before the lack of established best practices in geopolitical analysis collided with the degree of personal preference involved in producing investor briefings and caught a financial institution out.
From the FT last week:
Bank of America cut short an online client conference on geopolitics and apologised to attendees after some balked at what they saw as pro-Russian comments about the war in Ukraine, according to three people who attended the event.
The conference was designed as a two-day event beginning on Tuesday, but BofA Securities cancelled three sessions addressing US sanctions on Russia and Russia-US relations. The move came after some clients complained about the tone of comments by speakers from inside and outside the bank during online forums on Tuesday.
One of the bank’s strategists telephoned clients after the event to apologise for the content of Tuesday’s sessions, according to three people familiar with the matter.
As geopolitical risk has moved to the centre following Russia’s invasion of Ukraine, and predictions ensue about the conflict’s second- and third-order effects, so too has the stampede of what investors call “tourists” — neophytes wading into asset classes they know nothing about.
In the case of geopolitics, this phenomenon is possibly even more painful to observe, thanks to the misbegotten notion that political analysis is little more than formulating an opinion after a bit of Wikipedia-surfing, amplified by the rich-dude phenomenon that being good at one thing (making money) makes your opinion valuable on everything. (Do I even need to name names?)
In the aftermath of the global financial crisis and rise of populism that led to the election of Donald Trump and Brexit in 2016, financial institutions began to seek out political expertise to help advise clients, and the institutions themselves. Former government officials and retired generals are a popular choice.
There has also been a swelling in the ranks of government affairs professionals, often lawyers and/or former government officials, whose day job is to lobby governments on behalf of the institution, but who are increasingly relied upon to be political consiglieres at large.
Trailing behind are the actual geopolitical experts. Most of these are trained in political science, regional studies or political economy, some have hands-on experience with assessing which risks will impact markets and the economy, and a smaller subset do so using data and some degree of methodological rigour.
Until fairly recently, geopolitical risk analysis has often been outsourced, keeping costs low but at the expense of meaningfully operationalising the insights — or reducing them to topical client “infotainment”. (Different again are polling and election prognosticators, though they are lumped into the same mix.)
I suspect the aftermath internally at Bank of America won’t be pretty, but it would be the wrong to simply stop providing these briefings to clients. Geopolitics is still rightly regarded as top concern for investors. Instead, just improve quality control, for God’s sake.
Even high analytical standards and clear sourcing doesn’t always prevent some clients complaining of bias, and conflating risk analysis with picking sides. But that just increases the need for financial institutions to conduct better due diligence to ensure they are not giving a platform to amateurs, propagandists, and cranks, particularly in an era of rampant mis- and disinformation.
Proper geopolitical analysis should be non-partisan (unfortunately, the same cannot be said about election polling) and, like scientific experiments, the results should be able to be reproduced. If the insight requires needing to be “in the room where it happened”, to borrow a phrase from Hamilton, then it is hearsay, even if can be titillating.
In order to dispense investment advice, governments require practitioners to have completed basic competence in the relevant disciplines, and to be a “person of good standing”. Not so for would-be geopolitical analysts, who — judging by the legions one encounters on LinkedIn — need only have completed a semester abroad and a degree in Russian poetry to hang out their shingle.
The BofA debacle is a good opportunity to start requiring higher standards to keep the geopolitical tourists from giving the residents a bad name — and doing investors a disservice during a tumultuous time.
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