Capital futures

I make the following prediction on the capital markets by 2030: Sovereign wealth funds, pension funds and private wealth will increase the most in importance as a source of financial capital. I base this prediction on several long-term trends, reasonably to be expected to take their course in the absence of major hiccups in the form, for example, of an inter-regional war, major pandemics and other serious risks: Private and public wealth will increase sharply and world population will continue to age. Mail me if you think my prediction and assumptions are unreasonable.

Governments are heavily involved in the extraction of natural resources on all continents. Owing to the ultimate exhaustibility of natural resources, this situation will hardly change. As a result, much income from natural resource extraction will continue to end up in government coffers. In some parts of the world, for instance in East Africa, such coffers are just starting to be filled. Government revenues will additionally be buoyed by price spurts driven by the inescapable long-run trend of increasing scarcity of natural resources coupled with increasing demand from rapidly developing world regions like China, India and Brazil. Revenues from de facto non-renewable natural resources are by nature temporary. For this reason, governments will have a strong incentive to forgo immediate public consumption and invest the revenue windfalls in assets other than money to maximize returns. Owing to the liquidity and depth of the financial markets, financial assets will feature in any reasonable asset diversification strategy. The institutional setup of choice for effectively managing such public investments are sovereign wealth funds. Considering a more inclusive definition of natural resource, many countries in the developing world have great natural wealth in the form of their huge pools of underused labor. Eventually this great resource will not only be more productively used but also monetized through the accumulation of private wealth also seeking to diversify through the financial markets.

In nations with shallow domestic labor, goods and service markets and rudimentary to no social security systems, having lots of children is one way to ensure prosperity or even survival. In countries with high living standards and extensive social security nets, having children is more motivated by individual fulfillment and rather associated with being a financial burden. Hence, climbing living standards in developing countries will, with a time lag, decrease birth rates and accelerate the aging of populations. With the ratio between the working population and retirees shifting ever more to the latter, more private and public-induced savings will end up in retirement schemes such as pension funds.