The Garrulous Jay – Fink For A Minute

When Larry Fink, Chairman of the world’s largest asset manager, BlackRock, leads his annual letter to shareholders with the heading “Time to rethink retirement”, it’s probably worth reading…

Given the millions of investors BlackRock boasts outside the US, it’s surprising how America-centric the letter is. Notwithstanding this, his concerns about the future of retirement in the US have relevance more widely, and specifically to the UK.

Capital Asset

Given his job, it’s no surprise that Fink extols the virtues of large and healthy capital markets. Citing the ability of his parents to enjoy a healthy retirement, he argues that “Countries aiming for prosperity don’t just need strong banking systems — they also need strong capital markets.”

Fink argues a large and healthy capital market drives savings, builds wealth and then recycles that wealth back into growing the economy. It is that that funded his parents’ retirement.

He points out the way in which many countries are seeking to develop and grow their own capital markets based on this model.

We should therefore be concerned about the recent decline in the UK stockmarket. This isn’t just about its performance, which has indeed been underwhelming, but also its attraction as a venue for companies to raise new finance. Once businesses seek to list elsewhere what was a virtuous cycle can become a vicious one.

Demographic Timebomb

As Fink points out, the demographics around retirement are alarming. Not only are populations ageing across the world, but healthcare is extending lives, while social security systems are failing to adapt.

Fink cites a UN report showing when various countries will reach “peak workforce”: the year more people start leaving the workforce than joining it. For the UK it’s just five years away.

He also points out that that, “we focus a tremendous amount of energy on helping people live longer lives. But not even a fraction of that effort is spent helping people afford those extra years.” In other words, retirement saving should be given a much higher priority.

In the US the federal government has prioritised providing benefits to existing retirees, leaving younger generations feeling abandoned and economically anxious… Sound familiar?

Fear Factor

“I’ve been working in finance for almost 50 years. I’ve seen a lot of numbers. But no single data point has ever concerned me more than this one.”

The data point Fink refers to is a survey that found 25% of young Americans say it’s “hard to have hope for the world”.

Without hope, he argues, people will play it safe, put money in the bank (or under the mattress) and cease to support capital markets. This will in turn stymie economic growth, thereby building another vicious cycle as markets struggle to perform, further feeding the fear factor.

Vicious Back To Virtuous

The core message is therefore that hope needs to be rebuilt to incentivise people to save for their retirement thereby feeding economic growth, driving up optimism.

Fink for President? They could do worse…