Preface

This book is about my interpretation of demographics and its manifest implications for investments, macroeconomics, and policy. It represents more than two decades of research and synthesizes the connectivity of demographics with several subfields of economics: history, macroeconomics, international economics, labour economics, monetary policy, financial economics, development economics, etc. Repeated requests from clients, friends, and family, especially over the last eight years, have been the motivation for this book. My perspective is largely uniquely mine and like that of Peter F. Drucker1.

I draw on my teaching and reading across various subdisciplines of economics and finance to make demographics relevant for investment practitioners, policymakers, and applied researchers. My research notes have made this discipline relevant across different asset classes (equities, fixed income, real estate, commodities, alternatives) and geographies. This allowed for creation of investment products and funds based on the applied research. I challenge many conventional perceptions as being narrow and at best partially correct, offering multiple examples.

I believe that demographics pertains to each individual on the planet and not just the young or the old. I also highlight differences across old countries and old individuals, cautioning against blanket generalizations as the only defining criterion. The idea in the book is to explain relationships between demographic variables and economic as well as financial variables in an intuitive and consistent fashion. Wherever possible data, models, and frameworks are used to embellish the ideas.

In the spirit of a "Brave New World"2, this book challenges convention, expanding the boundaries of thought for understanding the real world of economics, investments, and policy options across multiple generations. It brings together macro and investment insights holistically with implications for individuals, companies, and countries. It discusses the important area of intergenerational fairness in a world where up to four or five generations co-exist for the first time in human history. Social responsibility and gender equality are at the core of important policy issues I discuss for a braver, better world. I hope the ideas in this book inspire discussion, debate, and understanding of issues that are critical for a better future society.

The structure of the book is as follows:

1. Introduction. This chapter introduces and amplifies a broader, more insightful perspective of demographics. It presents the layout and chapter sequence with a few sentences to highlight the key issues, major take-aways, and challenges to a traditionalist perspective. It should encourage readers to go to specific chapters on a deeper dive to unravel various strands of demographics.
2. Global demographic trends. This chapter summarises key trends with links to major public data sources. The purpose of highlighting these trends is to shed new light on several issues that readers broadly know of but often misinterpret or miss the point of. Age distributions (population pyramids), fertility, life expectancy, old-age dependency ratios, migration rates, gender ratios, etc. are presented and discussed. The focus is on the more important differences that are typically glossed over in order to aggregate countries, regions, and cities on some common feature. For example, what are the key differences across similar-looking Nordic countries; or open economies like Singapore, Taiwan, etc.; or smaller countries in the Middle East; or the US vs. Canada or the EU4? This chapter shows why certain commonly used and aggregated metrics or indicators may be misleading. Why are the largest advanced countries different from each other in important ways? The pace of urbanisation and growth of megacities have implications for sustainability, human development, health, and education. The concept of demographic transition, which interacts with economic cycles and affects all aspects of human life worldwide, is also discussed. Data differences and interpretation provide motivation for further discussions in later chapters.
3. Macroeconomics: This chapter shows how characteristics and behaviour of consumers and workers affect economic growth, living standards (GDP per capita growth), inflation, and unemployment. Demographic effects are not just long-term, as these factors are also short-term variables. Consumers and workers make decisions throughout their lives, not just for the long-term. Understanding the implications for public debt, savings, and capital flows is vital to develop better policies and make optimal decisions. Economic growth is related to growth in worker numbers, worker productivity, and hours worked. I discuss why labour productivity growth is key to reviving global GDP growth in the developed world as well as major fast-growing emerging markets. Gender equality and youth empowerment are potential solutions to greater economic output. It is argued that long-term ageing-related promises are unsustainable in a lower-growth world and need renegotiation for fairer intergenerational equity. The chapter discusses the potential realisation of the demographic dividend across emerging and developed economies.
4. Asset prices: This chapter discusses how demographics affects equity, bonds, real estate, and commodities in terms of asset prices and returns. The chapter presents insights from the academic literature on allocating accumulated resources over the human lifetime. Workers and retirees are faced with longer retirement periods, lower average growth, "lower for longer" interest rates, lower investment returns (equity, corporate bonds, high yield, etc.), and lower inflation than in the past. Investment returns and asset prices are influenced by consumption, savings, and investment decisions of households. Governments are faced with the responsibility of ensuring lower poverty rates for retirees in the future. The chapter presents the links between demographics and equity premia, sovereign bond yields, and sovereign ratings and also highlights equity sectors that are demographically advantaged and likely to emerge as winners.
5. Longevity and health: This chapter provides insights into and discusses the reasons for uncertainty regarding longer horizon resource planning for individuals and institutions. The emphasis on good health and importance of public health investments has been continuous throughout the ongoing COVID pandemic. The need to focus on healthy life expectancy and disability-adjusted life years rather than life expectancy at birth is emphasised. It is also important to know how longevity uncertainty and longevity risk management can be improved to enjoy a healthy and adequate retirement life. The models of longevity and instruments to defray longevity risk (the risk of outliving accumulated savings) need to be better understood by institutions (pension funds, reinsurers, insurance companies) to manage assets to meet longevity-related obligations (liabilities).
6. Retirement and pensions: This chapter highlights the importance of pension institutions amongst global financial institutions and investors. It presents a history of retirement and pensions, pension investment trends, issues facing pension funds, and design of pension systems. Issues underlying strategic and dynamic asset allocation for pensions are discussed, as are the implications of funding for corporate pension funds. The behaviour of the "new giants" (pension funds) is considered important by policymakers such as central banks and treasury departments for the well-being of citizens as well as potential contributors to global systemic risks. The rise of defined contribution plans where participants bear the risk is not without its own issues and has led to the origin of hybrid pension systems. The chapter highlights issues for the collective world of pensions in dealing with the changing new world by adopting changes to mindsets, tools, and asset allocation. It is noted that the governance and management of pension funds is as important as the investment returns from an efficiency and comprehensiveness perspective.
7. Gender, human capital, governance, and quality of life: This chapter extends the focus and objective of individuals and households as well as collectively of institutions beyond monetary and pecuniary values. The extension beyond individual utility to social welfare functions and the human development index and happiness scores is essential for a world where income equality, gender equality, climate change, and corruption are serious concerns. The chapter discusses United Nations sustainable development goals (SDGs), transparency, national governance indicators, and gender scores to assess progress on a sustainable quality of life in a world where Millennials and younger generations care about the environment, equality, sustainability, fairness, and the "means more than just the ends". We note that quality of life, climate change, and happiness are considered important for a better world and should be monitored.
8. Summary and conclusions: A broader and deeper understanding of demographics is core to creating a better economic and investment environment for multiple generations in an ageing world. Healthy life expectancy with adequate retirement savings is essential for a responsible, sustainable future. Globalization, technology, geopolitics, and politics will interact to influence future consumer and worker behaviour.

Throughout the chapters, all the notes and references have been collected and...