Pim Poppe: Are you managing the risks identified by the IMF?

Pim Poppe: Are you managing the risks identified by the IMF?

October 20, 2026

Risk Management

This column was originally written in Dutch. This is an English translation.

By Pim Poppe, Managing Partner, Probability & Partners

The IMF’s latest Global Financial Stability Report provides an in-depth overview of developments in the global economy and financial markets. A report well worth reading in these turbulent times.

The GFSR aims to identify vulnerabilities in the global financial system and to support policies that mitigate systemic risks and strengthen resilience. The report is primarily written for policymakers and financial authorities, such as central banks, supervisory authorities and ministries of finance.

However, it is also relevant to investors and risk managers. We enjoy reading the report. It can inspire us to assess risks that are not yet sufficiently on our radar and to bring them to the attention of our clients. Furthermore, the report serves as a benchmark against which we can assess our own scenarios and assessments. Broadly speaking, the Global Financial Stability Report covers the same themes as the previous edition published in April. However, the narrative surrounding them has changed.

In the table below, we summarise the report in a way that suits us. We use the IMF report to tell our own story. The first column sets out the risk as described by the IMF, along with whether the risk has remained the same or worsened. The second column elaborates on and assesses that risk from the IMF’s perspective. In the final column, we provide our advice on what you, as an institutional investor, should at the very least consider doing.

Key GFSR risks and risk responses for institutional investors

Risk Mentioned

— trend

 

IMF assessment

 

 

 

Risk management recommendations for institutional investors

by IMF

 

by IMF

(summarized by P&P)

by Probability and Partners

AI-related market correction

 

— broadly unchanged
  • Growing size of AI-related assets.
  • Weaker or less durable AI investment and profitability could trigger a substantial correction.
  • Core firms remained highly profitable.
  • Leverage across the AI ecosystem is increasing.

 
  • Measure AI concentration across the entire portfolio, including equities, credit, private equity.
  • Use look-through analysis to identify common exposures to companies, customers and revenue sources.
  • Stress-test simultaneous declines in profit margins and valuations.
  • Consider alongside widening credit spreads. Considers limit setting on aggregate exposure and subsector.

Sharp rise in sovereign bond yields

 

— deteriorated

 
  • Sovereign bond markets have a foundational role in financial markets.
  • Resurgent inflation or fiscal shocks that raise term premiums could have severe consequences for financial markets.
  • High debt and refinancing risks leave these markets vulnerable, although market functioning has remained orderly.

 
  • Assess interest rate sensitivity across both assets and liabilities.
  • Stress-test yield curves, inflation and credit spreads separately and jointly. Include collateral requirements arising from interest rate and currency hedges.
  • Identify available cash and liquid securities in advance, so that liquidity shortages do not force the unwinding of economically appropriate hedges.
  • Assess interest rate sensitivity of your equity portfolio.

 

Cyber threats

 

— deteriorated

 
  • Successful attacks on critical financial institutions or market infrastructure could cause severe disruption. Rapid digitalization increases exposure, while frontier AI models can strengthen both attackers and defenders.

 
  • Treat operational continuity as an integral part of investment risk management.
  • Map dependencies on custodians, asset managers, trading platforms and data providers.
  • Rehearse scenarios involving temporary disruption to trading, settlement or collateral management.
  • Establish alternative payment and communication channels and test their practical effectiveness.

 

Leverage and liquidity risks in private credit

 

— broadly unchanged

 
  • Default rates have declined, but liquidity pressures remain elevated and borrowers have become more leveraged.

 
  • Assess leverage at every level: borrower, fund and financing vehicle.
  • Reassess valuation methods and processes of Private Credit exposures.
  • Seek for common risk drivers.
  • Seek transparency on debt-servicing capacity, covenants, payment deferrals and valuations. Stress-test reduced repayments and distributions alongside continuing capital calls.

 

Source: The IMF’s risks and trends are presented in our own words. The assessment is our summary of the IMF’s judgement. The accompanying risk management recommendations are from Probability & Partners. To avoid having to search too long for words that are not commonly used in Dutch, the table is presented in English.

Over the past year and a half, we have been able to assist pension funds and asset managers in this regard. We always do so under the umbrella of geopolitical risk management (GPR). Sometimes the initiative for a GPR assessment comes from the asset manager and sometimes from the pension fund. Where the initiative lies is not particularly important. It is an important and sensible exercise. Asset owners and asset managers will need to work together to identify and manage these risks.

Just a few points from the table to draw your attention to. We believe it is worthwhile conducting a qualitative analysis of the sustainability of profit margins for AI-related companies. These are exceptionally high in a historical context and relative to the rest of the market. Will these margins remain high, or will they fall back to a more normal level due to competition or government intervention? This could have material consequences for valuations, particularly as the multiples would then also take a hit. Competition between the parties producing LLMs is fierce. The differences in performance between LLMs are narrowing and are now marginal, but costs vary. How can the investments be recouped? Chip manufacturers are also vulnerable should the general outlook surrounding AI shift.

Secondly, it is wise to view operational continuity as part of investment risk management. If operations grind to a halt, investment processes will also stall, leading to investment losses. This suggests that we may need to pay slightly more attention to cyber risk and business continuity than we generally do at present. It also seems important enough to consider practising all possible scenarios for disruptions to investment processes.

A final point to consider is not explicitly stated in the table, but does follow from it. Look at the balance sheet as a whole, rather than just by asset class. If you limit yourself to the latter, you will miss cross-connections and interactions.

 

More columns by Pim Poppe