Recalibrating Passive for the Age of Imbalances:

Q3 2025 | A SAVI Group Strategic Insight.

"The art of capital preservation lies not in resisting volatility, but in understanding which regimes redefine the rules." - SAVI.

A structural shift is transforming the global economic landscape. Protectionist measures, strategic industrial adjustments, and a renewed focus on fiscal strength are beginning to challenge the long-held beliefs of four decades of investment practices. At The SAVI Group, we believe passive capital cannot stay passive in its approach. The design of long-term portfolios must adapt, not as a quick fix, but as a permanent framework for resilience in an era of significant imbalance.

The global economy no longer operates within a unipolar framework of dollar stability and synchronized growth. Instead, we are entering a fragmented regime where supply chains are reshaped by geopolitical factors, where fiscal expansion is no longer limited by market discipline, and where inflationary pressures manifest not through overheating but through structural shortages. In this environment, capital cannot rely on outdated models of diversification or mean reversion. What is needed is a principled redesign of passive investments, grounded in both historical lessons and strategic foresight.

Our Q3 2025 Investment Policy Addendum formalizes this approach through what we call the Deficit-Country Equity (DCE) Rule. This framework recognizes that persistent current-account deficits, combined with currency dilution and weak fiscal discipline, create vulnerabilities that traditional benchmarks cannot neutralize. According to the DCE Rule, equity exposure to these jurisdictions, especially the United States, is limited to a low-to-mid-teens percentage of total portfolio NAV. Importantly, any issuer within this category must meet a strict exception framework. It must demonstrate pricing power, strong supply-chain localization, non-USD revenue dominance, and CPI or FX-linked revenue mechanisms. This is not a market call. It is a strategic stance designed to reduce exposure to fiscal policy errors, monetary repression, and declining external balances.

This approach is not speculative. It is based on a century of historical patterns. The interwar period of the 1930s showed how rising tariffs and retaliatory trade policies could break down global demand and cripple export-focused manufacturing. The stagflationary 1970s demonstrated how long-term currency debasement and energy shocks can reduce purchasing power and weaken long-duration assets that lack inflation passthrough. More recently, emerging-market crises in the late 1990s and early 2000s revealed how capital account vulnerabilities, FX mismatches, and fiscal opaqueness can cause asset prices to collapse despite strong local economies. These episodes share a common theme: when external imbalances combine with policy rigidity or excess, capital must move to quality, not just for yield but also for institutional strength, monetary independence, and structural surplus.

As we translate these lessons into portfolio architecture, we find ourselves increasingly attracted to sovereign systems where capital is disciplined, external accounts are positive, and domestic industry remains linked to real assets. Nordic economies, Switzerland, the Gulf Cooperation Council (GCC), and selected Asia-Pacific nations satisfy these criteria. In these jurisdictions, legal frameworks are strong, commodity exposure acts as a currency anchor, and balance sheet leverage stays limited. Importantly, our exposure to these regions remains unhedged. In a world where the U.S. dollar is not collapsing but slowly eroding under fiscal pressure, we view long-term currency optionality as an asset, not a risk to be neutralized.

Within asset classes, we are shifting our focus toward sectors with inherent resilience to supply shocks and currency dilution. These include midstream energy infrastructure with stable volume and tolling economics, industrial metals essential for global electrification and defense rearmament cycles, and CPI-indexed infrastructure assets operating under regulated concession models. We also prioritize cybersecurity and sovereign-backed digital infrastructure, sectors that are increasingly non-cyclical and benefit from national prioritization in fragmented digital economies. What connects these sectors is not their performance beta but their structural pricing power and low reliance on capital markets to maintain operations.

Our cash flow preference is now clearly defined. We look for assets with short cash-flow durations, high operating leverage against inflation, and minimal refinancing risk. We avoid capital structures that rely on yield compression to justify valuation and steer clear of long-duration assets without CPI escalation mechanisms. Additionally, we see physical bullion not as a tactical hedge but as a lasting reserve of purchasing power kept outside the fiat system and free from counterparty risk. This approach is part of a broader liquidity strategy that includes holding operating reserves in surplus currencies like NOK, CHF, AED, and DKK, enough to cover six years of spending without needing forced sales or distressed exits.

Passive resilience also depends on the process. Every holding within a deficit country jurisdiction must now be supported by a documented Benefit Justification Memo prepared by the OCIO. This memo should explain why the position qualifies under the exception framework: its industry classification, FX advantage, pricing power, and balance-sheet strength. Allocations that do not meet two or more of these criteria will be rotated out during the next quarterly rebalancing. This governance ensures passive exposure is aligned with active discernment. Our OCIO model increases accountability.

Critically, we have embedded a series of early-warning triggers ranging from sustained DXY depreciation to real-asset price spikes and geopolitical escalations that automatically accelerate review cycles and authorize CIO-led reallocations within ten trading days. This formalizes our ability to act decisively while maintaining the strategic posture.

At The SAVI Group, we do not claim to predict cycles. We focus on building for regimes. We believe the next decade will not benefit from simply copying benchmarks designed for yesterday’s economy. Instead, it will favor disciplined exposure to surplus-country assets, real-asset cash flows, and structural convexity in currencies, commodities, and volatility itself.

The mandate is not about growth at any cost. It focuses on preservation with purpose. It adopts a real-return mindset for a world no longer driven solely by financial engineering. It is a blueprint for permanence amid impermanence.

We position not for headlines, but for history.

If your capital mandate aligns with this philosophy, whether as an endowment, family office, or sovereign allocator, we invite you to connect with us. This is not a time for reaction; it's a time for reinvention.