The State of the Global Economy: Global Capital Markets | Global Conference 2025

Global Capital Markets & Policy Impact

• Three distinct phases are expected regarding tariff implementation:
  • Phase 1 (Current): Forward loading of consumer and corporate spending, evidenced by robust April data.
  • Phase 2 (Pending): A "wait-and-see" period suspending CapEx and hiring decisions, potentially dampening near-term demand.
  • Phase 3 (Long-term): Implementation impacts on supply chains and pricing, contingent on the final tariff magnitude (10% vs. 25% vs. higher).
• Client sentiment indicates high sensitivity to tariff thresholds:
  • 10% tariffs are viewed as absorbable by most corporate clients.
  • 25% or higher tariffs are projected to catalyze different, more negative economic dynamics.
• China-specific exposure remains a primary concern:
  • Tariffs on certain Chinese goods currently stand at 14.5%, with 10% exemptions for a 90-day window.
  • Daily market volatility is expected as new import/export restrictions are announced.
• Capital allocation strategies are shifting toward defensive postures:
  • Corporates are strengthening balance sheets and executing strategic actions while delaying supply chain transformations.
  • Carlyle reports portfolio companies are prioritizing financial flexibility and capital protection over rapid growth.
  • Prudential observed a slowdown in real estate transaction volume and funding levels in March and April due to policy uncertainty.

Investment Outlook & Asset Class Strategy

• Long-term investors maintain a bullish stance on U.S. assets despite short-term friction:
  • Mubadara allocates 42% of its $330 billion portfolio to the U.S. and does not foresee a major shift despite increased business friction.
  • The U.S. retains its status as the premier global capital market with superior depth, breadth, and "exorbitant privilege" compared to European alternatives.
• Multipolar economic shifts are accelerating capital reallocation:
  • Capital flows are increasingly diversifying into the Middle East, with Abu Dhabi experiencing record inflows of sovereign wealth and high-net-worth family offices.
  • India is emerging as a dominant growth engine, benefiting from "China Plus" strategies and domestic dynamism.
• Private credit is identified as the fastest-growing asset class by allocation over the last three years:
  • Jane Fraser (Citi) and Waleed Al-Abbar (Mubadara) note private credit acts as a complementary tool to bank lending rather than a threat.
  • Carlyle (Harvey Golub) asserts that business operators choose capital sources based on the "efficient frontier," leading to higher private credit usage.
• IPO market activity faces structural headwinds:
  • The number of public companies in the Wilshire 5000 has dropped to roughly 3,000, half of the 2000 levels.
  • Regulatory burdens and quarterly earnings pressure are keeping mid-cap companies private; a rebound requires deregulation and a level playing field.
  • Franklin Templeton is exploring late-stage venture allocations within public funds (capped at 15%) to capture private growth returns.

Fiscal Policy & Deficit Concerns

• Market participants agree on the unsustainability of current U.S. fiscal trajectories:
  • The U.S. deficit stands at 6.7% of GDP, with total debt reaching $33 trillion.
  • Tariffs are being utilized to fund the extension of existing tax cuts, with a target of generating $400–$450 billion annually to avoid revenue shortfalls.
• Political timelines constrain fiscal resolution:
  • Administrators face a compressed 18–24 month window to pass legislation before potential midterm elections disrupt control.
  • Jenny Johnson (Franklin Templeton) anticipates market clarity will emerge in 3–4 months once the administration completes key trade and tax negotiations.
• Global demand for capital is projected to rise significantly over the next decade:
  • Drivers include defense spending (e.g., Ukraine rebuilding), onshoring initiatives, and global infrastructure requirements.
  • Waleed Al-Abbar forecasts the marginal cost of capital will trend higher due to these extraordinary demand pressures.

Artificial Intelligence & Productivity

• Mubadara is positioning AI infrastructure as the primary long-term productivity booster:
  • The firm created MGX to invest in AI infrastructure, addressing constraints in energy, transmission, and data center capacity.
  • MGX holds unique positions in Anthropic, OpenAI, and xAI, leveraging sovereign capital to solve energy bottlenecks.
• Enterprise adoption of AI is focusing on specific, scalable use cases:
  • Citi is deploying "agentic AI" for coding and customer service, noting AI's ability to provide relentless empathy.
  • Prudential is applying AI to underwriting, reducing process times from 10 days to 3 hours while increasing headcount to handle higher throughput.
  • Carlyle utilizes proprietary historical data (EBITDA, performance stats) to train internal models for competitive advantage.
• Panelists maintain a consensus on the labor market impact of AI:
  • The prevailing view is that AI will not reduce employment but will alter skill sets, shifting focus toward creativity and high-level decision-making.
  • Harvey Golub predicts AI's long-term economic impact will surpass that of tax policy and tariffs within a 3–10 year horizon.
• Franklin Templeton is integrating private market exposure into public vehicles:
  • The firm allows up to 15% exposure to late-stage venture capital within growth equity funds to replicate the performance kicker of pre-IPO assets.