Markets are mispricing geopolitical risk, Carlyle CEO Harvey Schwartz says

Investors have become complacent about political risk, Carlyle CEO Harvey Schwartz said Tuesday at Semafor World Economy, although he is optimistic about the current global economy.

Markets are mispricing geopolitical risk because the world hasn’t undergone a severe geopolitical event for some time, he said. Markets responded seven times more violently to the collapse of a Silicon Valley Bank than they did to Russia’s invasion of Ukraine, even though the latter was “wildly” more significant.

Geopolitical events “are hard to price and they are hard to hedge,” he added. “So it’s very difficult to assess that kind of risk.”

An additional threat, he said, has emerged along with AI: vibe-coding. He said though he is not personally vibe-coding — using AI to develop software instead of writing code line-by-line — companies are left vulnerable when employees don’t write code themsleves.

“Where did you do it?” Schwartz asked rhetorically, referring to vibe-coding. “Did you do it in the kitchen? Did you do it in the office with your technology people around you?”

“I don’t want people randomly coding” at the companies Carlyle has invested in, he said.

Still, Schwartz remains optimistic based on what he has seen at Carlyle’s portfolio companies. The economy is doing well, inflation seems to be under control, government policies are being implemented effectively, and cash flows at Carlyle’s portfolio companies are increasing, he noted.

There are “real issues for us to be concerned about,” Schwartz said. “But the core economic engine globally feels pretty good.”