Conference Presentation, Panel
New Opportunities From a World in Transition
Milken InstituteMichael Piwowar, Daniel Farley, James McCormack, Angela Rodell, Bart Turtelboom, Dan Farley
- Monetary policy is expected to undergo a transition not yet seen, with real U.S. Fed funds rates remaining below historical averages while the European Central Bank is considered "long in the cycle" relative to its economic cycle.
- Advanced economies including Canada, the US, Australia, New Zealand, and Western Europe face unfavorable labor force growth trends comparable to the demographics of Japan and Germany if immigration is not factored into population projections.
- Political populism and political disruption are anticipated to persist and rise, particularly in emerging markets, driven by an unmanaged expectations gap regarding living standards, potentially creating a volatile investment environment.
- A demographic shift toward an aging global population will result in government spending in the Eurozone reaching roughly 20% of GDP on older population support, while capacity utilization for those over 80 is expected to drop.
- A 50-50 balanced portfolio is projected to return approximately 5% in the future, with achieving 7% or 7.5% targets described as a significantly more difficult hurdle.
- Emerging markets in India, Africa, and the Middle East are forecast to experience growth driven by demographics, specifically noting India will have over 100 million people under the age of 12.
- Investment returns in emerging markets carry significant risk, where potential gains of 300% could be accompanied by losses of minus 80%, requiring investors to accept volatility rather than deny its existence.
- China's transition from cheaper consumer goods to higher value-added products is expected to continue, increasing trade tensions and making many market participants uncomfortable.
- Over the next five years, embedding ESG metrics and frameworks will be critically important for emerging market investing to sustain growth rates needed to narrow income disparities with the G7.
- Infrastructure leapfrogging in emerging markets is expected to occur due to a lack of existing infrastructure, allowing for the adoption of new technologies and opening opportunities in sectors like payment systems.
- The Alaska Permanent Fund and the state of Alaska itself are expected to benefit from technologies used in emerging markets, particularly given Alaska's remoteness and the opening of new shipping lanes that shorten logistics.
- The fastest-growing segment of the global population is projected to be those aged 80 and older, creating opportunity sets in pharmaceuticals, leisure, travel, financial services, fintech, and mental health preventive care.
- Political and regulatory frameworks in the US, Europe, and Japan are expected to force emerging markets to adopt serious ESG compliance to secure necessary foreign investment and funding for infrastructure and healthcare.
- Technological advancements are predicted to address inefficiencies in education delivery in developed markets, which is currently described as stuck in a "19th century mindset," and to disrupt the driving sector by displacing the number one job through autonomous vehicles.
- Increased transparency via data availability and AI-driven data scrubbing is expected to allow asset managers to better decompose returns into skill versus factor premiums and catch anomalies.
- Investors with adaptive business plans designed for 20 to 50 years will present opportunities despite current ESG challenges, and reducing barriers to access in emerging markets will broaden opportunities while likely reducing expected returns.