Some money managers are already preparing for the demographic shift.
Idanna Appio spent 15 years at the Federal Reserve Bank of New York analysing the history of sovereign debt crises. Now, as a fund manager at the $138 billion First Eagle Investments, she’s reached a conclusion: US Treasury bonds are too risky to hold.
“We think of demographics as a slow-moving train and it’s not,” said Erik Weisman, a portfolio manager at the $607 billion MFS Investment Management in Boston. “It’s a train that’s barreling toward us and if you don’t get off the tracks you’re going to get run over.” Inflation buffer The inflation case is partly built on a simple idea of more old people spending, fewer young people producing. Given that view — not universal, but widely held — certain asset classes are attracting particular attention.
Inflation concerns appear at odds with the experience in Japan, with the world’s oldest population, and its era of slow growth and deflation, a backdrop that would favour bonds. Equity switch The United Nations predicts that one in six people will be aged 65 or more by 2050. Getting investments right for that world is a particular concern to pension funds, a massive cohort managing about $50 trillion globally which must align investment strategies to ensure they meet liabilities to future retirees.
Governments also need to get ready, along the lines of Japan’s 2014 decision to take more equity risk in its Government Pension Investment Fund. Eurizon SLJ Capital’s Stephen Jen urges the US and Europe to be even bolder than the GPIF which has a 50/50 equity/bond split; instead they should emulate Norway’s 70/30 model, he says.
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