A September 2025 paper argued that more than a decade of exceptional US performance had created structural portfolio overweights and that Europe, the UK and Japan were likely to benefit as investors began to normalise those exposures. At the time, the signal was clearer in conversations with asset owners than in reported flows. A year later, early flows, transactions and changing allocator behaviour are making that shift more visible.
Normalisation is not a call to abandon the US, nor is it a short-term regional trade. Strategic portfolios move slowly. Research, manager selection, governance and implementation take time, particularly in private markets. The more important question is whether the concentration built over the previous decade still represents the right strategic balance.
That concentration extends beyond listed equities. Many international institutions have accumulated significant exposure to US Treasuries, corporate credit, private markets, real estate and the dollar. Reducing one US allocation while increasing another does not necessarily reduce dependence on the same economy, currency or financing environment. Geographic diversification therefore needs to be tested against underlying economic exposures as well as country or index weights.
The evidence that capital is broadening is now more visible (Figure 1). Within the European fund market, European large-cap funds moved to €41.2bn of inflows in 2025 from €12bn of outflows in 2024, while US large-cap inflows fell to €6.2bn from €98.3bn. Dutch pension funds sold €30bn of US securities in 2025, including €18bn of sovereign and corporate bonds. In the UK, the Mansion House accord is also attempting to rebuild domestic institutional capital after decades of declining pension fund and insurer ownership of quoted UK equities.
Figure 1. Early evidence that capital is broadening
| Evidence | What has changed | Why it matters |
| Border to coast | Shifting around 5%-10% of listed US investments towards Europe and Asia. | A large institutional investor explicitly linking the change to concentration, while continuing to identify attractive opportunities in US private assets. |
| Dutch pension funds | Net €300bn of US securities sold in 2025; net €23bn of European securities purchased. | Observable institutional rebalancing, principally through fixed income, while some equity selling reflected normal rebalancing after market gains. |
| UK corporate assets | Foreign bids for UK companies have exceeded $197bn in 2026 and account for 86% of UK mergers and acquisitions value. | Global strategic and private capital is independently identifying value in UK-listed businesses. |
| European infrastructure | CPP Investments and Goodman established a A$14bn European data-centre development partnership. | Long-duration international capital is being committed to Europe’s changing physical investment opportunity set. |
Source: Authors
The significance is not simply that capital is moving geographically. Capital supply can also influence the opportunity set it enters. Years of weak domestic capital formation in Europe have affected liquidity, financing and transaction activity. Returning capital cannot substitute for stronger economic or corporate profit growth, but it can improve the conditions in which businesses invest and scale.
The challenge extends beyond geography
The hurdle for the rest of the portfolio has also changed. With the US 30-year Treasury yield above 5%, liquid government bonds once again provide meaningful income. Equities need sufficient earnings and cash-flow growth to justify additional risk. Private credit, infrastructure and other illiquid assets must offer enough incremental return to compensate for illiquidity and complexity.
Private markets illustrate the challenge. Exit activity has improved, but distributions remain weak and the backlog of unsold companies substantial. Stepstone estimates global private equity distributions were equivalent to 12% of prior-year net asset value in 2025, compared with a long-term average of 21%. Liquidity is therefore better understood as a spectrum than as a simple public-private divide.
Artificial intelligence presents another version of the same problem. It is no longer simply an equity theme. Hyperscalers are becoming major issuers of public debt, private capital is financing compute infrastructure and the physical build-out requires data centres, power generation, transmission, land and water. An institution may therefore own a hyperscaler’s equity, its investment-grade bonds, private financing linked to compute infrastructure and the physical assets supporting the same capital cycle.
Each exposure may look sensible within its own mandate while the aggregate portfolio becomes increasingly dependent on the same assumptions around AI adoption, capital expenditure, financing conditions and future cash flows. This is where traditional asset-class silos can obscure rather than reveal portfolio risk.
Capital-market assumptions remain essential. They impose discipline and provide a common basis for comparing assets. But they are not the allocation decision. Historical data reflect relationships formed under a particular set of market structures, policy regimes and sources of capital. When those conditions change, models can take time to recognise their significance.
What should investment committees do now?
The value of an investment committee lies in its ability to challenge, debate and exercise judgement, not simply validate the portfolio that already exists. The evidence does not lead every institution to the same allocation, but it does suggest five questions deserve active discussion.
Are capital-market assumptions being supplemented with enough current information and judgement to identify structural change before it is embedded in the historical record? Does the geographic allocation still reflect the right strategic balance, or are changing capital flows and market conditions altering the opportunity set? Is AI being viewed across the whole portfolio, rather than separately by equity, credit, private-market and real-asset teams? Are public and private exposures being assessed consistently across the liquidity spectrum, including how capital will ultimately be returned? Do active mandates genuinely allow managers to be active, or have risk budgets and governance pulled them too close to the benchmark?
None of these questions requires an immediate change in strategic weights. For some institutions, the current structure will remain appropriate. For others, the first response may be to broaden research, redirect future commitments, reconsider mandate design or look differently across traditionally separate asset classes.
Strategic asset allocation is not only about estimating returns from the portfolio you know. It is also about recognising when the opportunity set is changing and leading the organisation’s response with judgement and discipline.
This article is a summary of a longer whitepaper, ‘Normalisation in Motion: Strategic Allocation Challenges in a Changing Opportunity Set’
Jahangir Aka is Founder of Aka & Associates. Paul O’Brien is Chair of the Audit and Risk Committee and member of the Investment Committee of the Wyoming Retirement System.
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