Investment markets move in cycles. Periods of expansion are followed by contraction, and both vary in length, depth and cause.

For long-term investors, market cycles are not unusual events. They are a normal feature of investing. The important question is not where the current cycle sits, but whether a portfolio is designed to withstand changing market conditions without requiring decisions that may compromise long-term outcomes.

For an investor with obligations extending across decades, success depends on maintaining a disciplined approach through both favourable and challenging market environments.

What a cycle actually changes

A market cycle affects three things at once, and they are worth separating.

Valuations.

Asset prices move, and the reported value of the portfolio moves with them.

Correlations.

Assets that have previously behaved differently can begin moving in the same direction, particularly during periods of market stress.

Liquidity conditions.

The ease of buying and selling assets can change, often becoming more difficult when market participants most want access to capital.

Only the first is immediately visible in portfolio performance reporting. The second and third often have a greater influence on how successfully an investor navigates a cycle.

What does not change

The obligations a portfolio is intended to support do not move with the cycle. A scheme expected to pay benefits in 2050 has the same long-term responsibilities in a falling market as it does in a rising one.

The strategic asset allocation should not change simply because markets have become more volatile. It is established against a long-term objective and reviewed through a deliberate governance process rather than in response to short-term market movements.

That stability is the point. If a portfolio’s long-term allocation changed every time market conditions shifted, it would no longer be strategic. It would become a series of short-term decisions.

How different assets behave across a cycle

Asset type	Typical behaviour in a downturn	Role in the portfolio
Listed equities	Prices fall quickly and visibly	Primary long-term growth exposure
Fixed interest	Performance varies depending on the cause of the downturn	Income generation and diversification
Unlisted infrastructure	Valuations tend to adjust more gradually, with many assets supported by contracted or regulated revenuesLong-term income and inflation protection	Valuations tend to adjust more gradually, with many assets supported by contracted or regulated revenuesLong-term income and inflation protection
Unlisted property	Valuations generally move more slowly than listed markets and can be influenced by occupancy levels and interest ratesLong-term income and growth potential	Valuations generally move more slowly than listed markets and can be influenced by occupancy levels and interest ratesLong-term income and growth potential
Cash and liquid holdings	Capital value is generally preservedMeeting obligations and maintaining portfolio flexibility	Capital value is generally preservedMeeting obligations and maintaining portfolio flexibility

The purpose of diversification is that no single asset class determines the overall outcome.

What we do during a cycle, and what we do not

Rebalance

When market movements take an allocation outside its agreed range, the portfolio is brought back towards its target position. In a downturn, this can mean buying assets that have fallen in value, a discipline explored further in our article on rebalancing.

Revalue

Unlisted assets are valued on a regular schedule. Significant market events may also trigger off-cycle valuations so reported values continue to reflect prevailing conditions.

Review liquidity

Obligations, capital commitments and risk management requirements are continually assessed against available liquid holdings to help ensure flexibility across a range of market environments.

We do not rely on forecasting the cycle

Our investment framework does not depend on accurately predicting where markets will move next. Long-term investment outcomes are built through portfolio design, governance and discipline rather than short-term market forecasts.

We do not change the strategic asset allocation in response to market movements

The strategic asset allocation is reviewed deliberately against client objectives and long-term requirements, rather than being adjusted in response to changing market conditions.

Why patience is a structural capability

Every investor intends to remain invested through a downturn. The investors most likely to succeed are often those who are not required to make reactive decisions during periods of stress.

The ability to remain patient is supported by liquidity that has been positioned in advance, allocation ranges agreed before they are tested, delegated authority established ahead of time, and a governance framework that provides clear guidance when markets become uncertain.

Patience described as a virtue is an intention. Patience built into governance is a capability.

In summary

Market cycles are a permanent feature of investing rather than an interruption to it. A portfolio built for a long horizon accepts that cycles will occur, positions liquidity so that obligations can be met throughout changing conditions, and maintains a strategic asset allocation designed to support long-term objectives.

Our focus remains on managing risk, maintaining portfolio resilience and delivering long-term investment outcomes for our clients.