(pictured: Brian Singer) 

The big calls that asset allocators have to make – and for Australian investors that’s often about currency – ultimately come down to geopolitical analysis. And that is, believe it or not, all about ‘Game Theory’.

According to Brian Singer, the head of dynamic asset allocation for Chicago-based global manager William Blair, investors are struggling to invest at the moment – they don’t know what to do. Interest rates are near zero or negative and equities are at fair-or-over value.

The markets are such, perhaps, because the world’s central banks have largely removed the market pricing mechanisms for interest rates. The markets don’t know how to discount prices for current and future conditions. “We are at the hands of the unknowable,” Singer says.

He has published a paper, ‘Game Theory and Macro Investing’, which provides a fascinating view of post-WWII politics from the perspective of an investor.

If you studied political economy at university in the 1970s, you’d know what Game Theory was. If you didn’t, then it’s: “A form of analysis of competitive situations where the outcome of a participant’s choice of action depends upon the action of other participants”. Modern-day MBA students, to be fair, are also well aware of Game Theory.

Singer said on a recent visit to Australia that, notwithstanding the apparent uncertainty investors have about where to direct their asset flows, “assets are still worth something”.

The problem is there is so much noise in the market that it become very difficult for fundamental investors – those who use fundamental valuation and other analysis techniques – to see where to invest.

“When I got into the [investment] industry in 1990 it was a necessary and sufficient condition [of investing] to do fundamental analysis. Now it’s not sufficient. You have to look at other things such as: negative interest rates; ‘ultra-easy’ monetary policy; debt levels; and, popularism,” he says.

Popularism is particularly popular right now. Every American fund manager who visits these shores at the moment gets asked about it, since the rise of Donald Trump, alongside Australia’s resurrection of Pauline Hanson and Britain’s Brexit, is the prime example.

Singer says that Game Theory tends to overlap with behavioural economics. To a certain extent, it’s not the strategy that’s important, it’s the strategising. (That sounds a hell of a lot like studying political economy in the 1970s to me.)

But from a fund manager’s perspective, Singer says, William Blair analyses how to use the results of Game Theory, by creating a deductive framework to organise the available information and focus the manager’s attention on the important investment themes.

As an example, Singer’s DAA strategy made money from the Russia-Ukraine conflict by looking to understand the motivations of the players, Singer says. “We are ultimately a qualitative fund manager… Every day we sit down for one to two hours and discuss the major themes in the world… Our team fights with each other over their views.”

For what it’s worth, I loved my time doing political economy at university in the 1970s!

• Greg Bright