Geopolitical Risk and the Epstein Files: How Prediction Markets Reshape High-Net-Worth Asset Allocation

The release of the Jeffrey Epstein files in late 2025 has emerged as a focal point for geopolitical and political risk analysis, with high-net-worth investors recalibrating their portfolios in response to shifting odds on document disclosure. As the Epstein Files Transparency Act-signed into law by President Donald Trump on November 19, 2025-mandated the Justice Department to release unclassified records by December 19, the interplay between policy timing, prediction markets, and investor behavior has created a volatile landscape. This article examines how platforms like Kalshi and Polymarket have become critical tools for hedging political risk, with concrete examples of sector-specific asset reallocations in defense, financials, and technology.

The Policy Timeline and Its Political Fallout

The Epstein Files Transparency Act forced the DOJ to disclose internal communications, investigative materials, and records tied to Epstein's detention and death within 30 days, though sensitive information could be redacted. This legislative push, spearheaded by bipartisan efforts, intensified scrutiny on prominent figures, including Prince Andrew and Larry Summers, while reigniting debates about institutional complicity. The deadline for release-December 19, 2025-became a flashpoint for political volatility, with the Trump administration initially resisting but ultimately complying under public and legislative pressure.

Prediction Markets as Early Indicators of Political Volatility

Prediction markets like Kalshi and Polymarket have emerged as real-time barometers of political risk. By late 2025, Kalshi traders assigned a 58% probability to the House passing the transparency act, while Polymarket priced Trump's compliance at 64%. These odds, derived from crowd-sourced sentiment, outperformed traditional polling and expert analyses in forecasting outcomes. For instance, Polymarket's 95%+ probability of the files' release by December 19 reflected a near-consensus that Trump would face insurmountable pressure to comply. Such platforms have become indispensable for investors seeking to quantify uncertainty, with trading volumes surpassing $2 billion in Q4 2025.

High-Net-Worth Asset Allocation: Sector Shifts and Hedging Strategies

High-net-worth investors, leveraging prediction market insights, have adjusted their portfolios to mitigate risks tied to the Epstein files and broader political instability. The 2025 High-Net-Worth Asset Allocation Study reveals a 47% allocation to public equities, 15% to private companies, and 17% to real estate, with alternative investments like crypto gaining traction according to the study. However, sector-specific shifts highlight a strategic pivot toward defense and financials:

1. Defense Sector: As geopolitical tensions and Trump's tariff policies heightened trade war fears, investors increased exposure to defense contractors. Prediction markets priced the likelihood of retaliatory tariffs at 70%, prompting allocations to firms like Lockheed Martin and Raytheon.
2. Financials: Banks implicated in Epstein's operations, such as JPMorgan Chase and Deutsche Bank, faced reputational risks. Investors hedged by shorting financial sector ETFs while favoring private credit instruments, which offer higher returns amid regulatory scrutiny.
3. Technology: Tech firms, particularly those with data privacy concerns, saw mixed reactions. While some investors avoided big tech due to regulatory risks, others targeted cybersecurity firms, anticipating increased demand for data protection amid the files' release.

The Role of Prediction Markets in Institutional Risk Management

The integration of prediction markets into institutional risk frameworks has accelerated in Q4 2025. Platforms like Kalshi and Polymarket, valued at $11 billion and $8 billion respectively, now provide data to major institutions, including Intercontinental Exchange (ICE), which partners with Polymarket to distribute market insights. This data informs tactical asset allocation decisions, with investors using market-implied probabilities to hedge against outcomes such as the release of an incriminating "client list" according to Polymarket data. For example, a 95% probability of the files' release on Polymarket led some investors to liquidate positions in politically sensitive assets, reallocating to gold and Treasury bonds as safe-haven plays.

Conclusion: A New Paradigm for Political Risk Hedging

The Epstein files disclosure has underscored the transformative role of prediction markets in modern investing. By translating political uncertainty into quantifiable probabilities, platforms like Kalshi and Polymarket enable high-net-worth investors to hedge risks with precision. As geopolitical and political volatility persist, the integration of these markets into asset allocation strategies will likely deepen, reshaping how investors navigate an increasingly unpredictable world.