By Joel Kranc

Everything is political. Your strategy at the office, your home life, and your friend groups–everything. To say that politics affects investing is an obvious statement. But a greater spotlight has been placed on it since the discussion of tariffs has been added to the mix.

While there are still more questions than answers at this point, a more than 100-day whirlwind of policy and tariff rollouts from the US, followed by pullbacks and negotiations, is leading to a hope that something will settle soon. Rob Morgan, a spokesperson and Chief Analyst with Charles Stanley, noted, “There is likely to be a negative impact on economic activity and company earnings, although the extent is difficult to quantify. The uncertainty around what the tariffs will mean for industries and individual businesses means we can expect a high level of market volatility.”

He further stated, “Global inflation is likely to be higher than it otherwise would have been, creating doubt around the pace of interest rate cuts from central banks, and overall, there is the probability of more ‘economic nationalism’ around the world. This stands to reconfigure supply chains and again push up business costs and prices.”

That’s just one element of politics invading investment decision-making. In Canada, the election of a Prime Minister, Mark Carney, is also rooted in the economic choices and political sea change occurring south of the border. His ascension to the top job in Canada is directly related to Canadian discontent with the withering of the US-Canada relationship. Most of Mr. Carney’s campaign was focused on how to economically weather this new political storm.

At the institutional level, the need, desire or wish to extricate from US investments is not as easy as it seems. Earlier this spring, the Canadian Association of Professional Employees called on the Canadian Public Sector Pension Board, and all pension funds to divest from Tesla.

“It is deeply concerning that Canadian public sector pension funds are being used to support a corporation whose owner is directly attacking the federal programs and workforce that deliver essential services for millions of ordinary Americans,” said CAPE president and Public Service Pension Advisory Committee member Nathan Prier.

“CAPE and its members stand firmly in solidarity with our siblings south of the border and against corporate interference, naked conflicts of interest, and indiscriminate job cuts that weaken critical public services ordinary Americans rely on.”

That’s just a request. But what is the reality on the ground? The Financial Times (FT) reported that several major pension funds are stopping or reconsidering their private market investments in the US until things “stabilize.” Some, according to the newspaper, have reduced their activity due to fears of losing tax breaks on American investments and broader geopolitical tensions. One unnamed source quoted in the paper said it would be “incredibly difficult” for the CPP Investment Board, as one example, to commit fresh capital to US private capital funds.

The FT quoted a person familiar with the strategy of another large Canadian pension fund who said there was “a lot of uncertainty” as to what type of infrastructure investments were welcomed by the Trump administration. “If we don’t get comfortable with investing in the US for six or 12 months, we will reduce deal-making … and then we will consider adjusting our strategy,” the person added.

Talk of tariffs and annexation led to rallying cries around the Canadian flag. During the past election campaign, many called for new Canada Savings Bonds, investments in pipelines, and diverting reciprocal tariffs towards displaced workers. So far, much of that discussion is academic.

In the meantime, investors remain fairly consistent in their thinking. A Global Investor Insights Survey released last fall, showed, for example, that monetary policy and economic uncertainty are top-of-mind concerns in terms of institutional portfolio performance. North American institutional investors anticipate that central bank policy (75%), high interest rates (71%) and the potential for an economic downturn (62%) will have the highest influence over clients and overall portfolio performance over the next 12 months. Inflation risk was also a key factor for 63% of pension funds, as was geopolitics for insurance companies (62%) and endowments and foundations (70%).

“Many institutional investors understand that the immediate impact the election has on the markets is temporary and that a well-informed, long-term view is crucial in constructing a resilient investment strategy. However, that still leaves nearly two in five institutions that are changing their risk profile, demonstrating that many anticipate long-term policy changes tied to the results,” said Adam Farstrup, Head of Multi-Asset, Americas.

A newly formed relationship is emerging between Canada and the US. Mark Carney’s visit to Washington, while not garnering any real new deals, has at least re-set a frayed relationship, to some extent. Investors are generally sticking to their long-term and diversification approaches to investing. Yes, politics plays a role, but so do many other economic factors.

For now, there is muted optimism that Canada’s economy is forging ahead in a new direction away from a north-south orientation and more east-west (and beyond). For large institutional investors, slow and steady will win the race.