Having spent more than two decades in asset management and private wealth, I have watched investors become more nuanced in the way they think about risk. What once appeared prudent can start to look less safe when the world changes around it. Today, that is increasingly true of portfolios that remain concentrated close to home.

For many European pension savers, emerging markets still carry the label of risk. The instinctive response can be to favor domestic or regional assets, especially in uncertain times. Yet concentration is also a risk. When portfolios are heavily exposed to the same geographies, currencies, fiscal cycles and demographic pressures as the liabilities they are meant to fund, they can become more vulnerable, not less.

This is why the diversification debate feels particularly timely. Europe is navigating a more fragmented global economy, renewed inflation concerns, higher defense and security spending, and a demographic profile that will place growing pressure on pension systems over time. EU defense spending reached €418 billion in 2025, up 20% from the previous year, and is projected to rise to €454 billion in 2026, equivalent to 2.4% of GDP. In such an environment, investing abroad should not be seen as a departure from prudence. It can be part of how long-term investors protect purchasing power, manage concentration risk and access growth drivers that are not available in the same form at home.

The starting point is home bias. Pension allocations often reflect familiarity, regulation, governance comfort and legacy market structures. None of these are irrational. But familiarity can create blind spots and lead to a deceptive sense of security. A portfolio that appears conservative because it is invested in familiar markets may in fact be highly exposed to the same macroeconomic shocks: slower regional growth, fiscal strain, political uncertainty, energy costs or rising public debt.

For pension investors, this matters because the objective is not simply to avoid volatility in the next quarter. It is to meet obligations across decades. That requires portfolios that are resilient to different economic scenarios. Demographics alone make this challenge more complex. OECD analysis shows that across member countries there were 33 people aged 65 and older for every 100 people aged 20 to 64 in 2025, a figure expected to rise to 52 by 2050. In the EU, more than one-fifth of the population was already aged 65 or above in 2025, in stark contrast to the demographic profile and outlook of many emerging markets. A smaller working-age population, higher age-related spending and slower trend growth all make the search for diversified sources of return more important.

Read the full ‘Thought Leadership’ article at the link below