Is it time to reframe market volatility?

We are often reminded that volatility has always been a feature (not a bug!) of financial markets. Yet every now and then (think Covid or even 2008) investors are compelled to reckon with why it ‘feels’ different now. 

In the past couple of weeks, that question has reared its head again. Indeed, Patrick Hosking in The Times wonders the same today, whilst noting that the VIX (or ‘fear index’) has reached high 20s. Those levels are officially spooky territory, which is where they have remained since the conflict in Iran kicked off. 

But what separates this from 2008 or even the 1970s, is that our collective definition of what counts as ‘market noise’ seems to have broadened. Let’s wind back to the start of this year when a certain acclimatisation was already underway regarding geopolitical fragmentation, persistent inflation cycles, central bank policy pivots, and the rapid repricing of risk assets.  

This is a significant shift from earlier in the decade when low interest rates, accommodative monetary policy, and broadly synchronised global growth meant that turbulent episodes (however sharp) tended to resolve relatively quickly. Volatility, in that context, could be interpreted as ‘just noise’ by fund managers urging clients to stay invested. 

That hypothesis has now changed. The rates environment has reset structurally, and geopolitics is no longer a tail-risk but persistent factor into portfolio construction. In this environment, merely acknowledging the ebb and flow of market cycles is unlikely to reassure many investors for long.  

In these markets, the distinction between genuine conviction and marketing becomes apparent relatively quickly. There’s a growing imperative for managers to actually articulate a credible, differentiated response that simultaneously reaffirms their original investment thesis.  

Those who successfully navigate this element of investor relations tend to share a few characteristics. First, they are clear about what they know and, critically, what they do not. Without repeating Warren Buffet’s adage, over-confident narratives masquerading as high conviction tend to age poorly. Second, they emphasise process over prediction. The value of a disciplined framework is precisely that it does not require a manager to call every turn correctly; it just needs them to respond consistently when conditions change. Third, they are willing to let performance speak where it can and contextualise it honestly where it cannot. 

Most fund managers claim to be disciplined, selective, experienced; many even believe it. The difficulty is that generic language, however well-intentioned, fails investors precisely when they need substance and clarity the most. 

In private markets specifically, this means being very clear at the outset about the structural advantages that longer-duration capital can offer, and for whom it might not be entirely suitable. The illiquidity premium is real, but it is only worth paying for managers who can demonstrate how they use the runway it provides. 

Genuine differentiation in a volatile environment calls for specificity. It means explaining what a strategy does, and even more importantly, how it behaves when conditions deteriorate. And it means treating investors as intelligent adults who can absorb nuance. Merely communicating for the sake of it, by smoothing over complexity with reassuring generalities, will only erode not build long-term trust. 

None of this is purely a short-term or crisis issue. How managers communicate their approach in periods of market stress matters enormously for their long-term positioning. Investors have long memories for managers who went quiet, or who disingenuously pivoted their narrative to match whatever the market was rewarding that quarter. 

The most durable reputations in investment management are built in exactly these moments. It’s not really about crystal ball-gazing to predict an imminent disruption, but actually demonstrating how their investment team understood the embedded risks, had a plan, and executed it with consistency. That story, told clearly and without defensiveness, is the one worth telling. 

For much of the past decade, market volatility has been something to be explained away. But if it’s here to stay, how managers choose (or not) to engage investors around it matters more than ever, regardless of their investment philosophy or appetite for risk.