The steady fracturing of the post-Cold War global order has created capital market challenges that are qualitatively different from those of previous decades — and Toby Watson brings to this subject a perspective shaped by long experience of operating across international markets in periods of genuine uncertainty.
Geopolitical fragmentation — the gradual breakdown of the integrated global economic order that characterised the three decades following the Cold War — is reshaping capital markets in ways that are still imperfectly understood. Trade relationships, currency dynamics and cross-border capital flows are all being affected. For investors, the practical implications are significant and not always straightforward to navigate. Toby Watson, whose career spans global structured finance, principal funding and investment management across multiple market environments, offers a grounded perspective on what geopolitical fragmentation means for those managing capital today.
The term “geopolitical fragmentation” covers a range of related developments — the fracturing of global trade relationships, the increasing use of economic sanctions as a policy tool, the decoupling of technology supply chains and the growing tendency of governments to treat strategic industries as matters of national security. Toby Watson, who spent nearly 17 years at Goldman Sachs working across structured finance and global principal funding — with direct exposure to markets across Europe, North America and Asia — before joining Rampart Capital as a partner in 2020, developed a practical understanding of how geopolitical dynamics affect financial markets and capital allocation decisions.
From Globalisation to Fragmentation: What Has Changed
For much of the period between 1990 and 2015, the dominant trend in the global economy was integration. Trade barriers fell. Capital flowed relatively freely across borders. Financial markets became more correlated, as the same investors participated across multiple regions simultaneously. That trend has not reversed entirely, but it has slowed considerably — and in some areas has gone into reverse.
The US-China trade tensions that escalated from 2018 onwards, the use of financial sanctions following geopolitical conflicts and the pandemic-era disruption to global supply chains have all contributed to a more fragmented economic landscape. For Toby Watson, the question for investors is not whether these developments are significant — they clearly are — but what they mean in practical terms for capital markets and portfolio positioning.
How Does Geopolitical Fragmentation Affect Capital Markets in Practice?
Geopolitical fragmentation affects capital markets through several channels simultaneously. Currency markets reflect shifting trade relationships. Equity markets price the implications of supply chain reconfiguration for corporate profitability. Credit markets assess sanctions exposure and regulatory change. Toby Watson, whose career at Goldman Sachs gave him direct exposure to cross-border capital flows across multiple geopolitical cycles, brings a practical understanding of how these channels interact — and why the effects of fragmentation tend to be more complex and persistent than initial market reactions suggest.
Toby Watson on the Practical Implications for Portfolio Construction
Geopolitical fragmentation creates portfolio construction challenges that differ from conventional macroeconomic risks. Interest rate risk and credit risk are well-understood dimensions of portfolio management, with established frameworks for assessment. Geopolitical risk is harder to quantify, more difficult to hedge and tends to manifest in ways that are difficult to anticipate precisely. For Toby Watson, that complexity does not make geopolitical risk less important — it makes careful, ongoing assessment of it more important.
Currency Risk and Shifting Trade Flows
One of the more direct channels through which geopolitical fragmentation affects investment portfolios is currency markets. As trade relationships shift and new economic blocs form, the relative attractiveness of different currencies changes with them. For Toby Watson, currency risk in this context is not simply about exchange rate volatility — it is about longer-term structural shifts in the role of different currencies in global trade and finance that fragmentation tends to accelerate over time.
Sanctions, Capital Controls and Cross-Border Risk
The increasing use of economic sanctions as a geopolitical tool has introduced a form of investment risk largely absent during the peak globalisation era. Assets held in jurisdictions subject to sanctions can become inaccessible or significantly impaired with very limited warning. For Toby Watson, this dimension of geopolitical risk underscores the importance of careful jurisdiction assessment in international portfolio construction — not as a peripheral concern, but as a central dimension of risk management that deserves the same analytical rigour as conventional financial risks.
Navigating Fragmentation Without Retreating From International Markets
Geopolitical fragmentation does not mean that international diversification has lost its value — it means the way international exposure is assessed and managed needs to evolve. Among the considerations most relevant for investors navigating a more fragmented landscape are:
- A more granular approach to geographic risk — looking beyond broad regional allocations to consider the specific geopolitical exposures of individual countries, sectors and companies
- Attention to the distinction between short-term geopolitical volatility — which may create temporary mispricings — and structural shifts that represent genuine and lasting changes in the investment landscape
For Toby Watson, the key discipline is maintaining analytical clarity about which risks are temporary and which are structural — and resisting the temptation to treat every geopolitical development as either irrelevant noise or a fundamental threat.
What Fragmentation Means for Long-Term Capital Allocation
For long-term investors, geopolitical fragmentation increases the complexity of assessing structural macro trends. Among the longer-term considerations that Toby Watson — whose career at Goldman Sachs and subsequent work at Rampart Capital as a partner have given him a wide-angle view of international capital markets — would regard as most significant are:
- The potential for a gradual bifurcation of global financial infrastructure along geopolitical lines, with significant implications for cross-border investment over the long term
- The increasing importance of regulatory and political risk assessment alongside conventional financial analysis, as government intervention in markets becomes a more frequent and consequential feature of the investment landscape
For Toby Watson, geopolitical fragmentation is not a reason to abandon international diversification — it is a reason to pursue it more carefully, with a clearer understanding of the specific risks involved and a more disciplined approach to managing them. Toby Watson would frame the central discipline simply: understand which risks are cyclical, which are structural, and position accordingly.
