Pensions & Resilient Investment David Korowicz Risk/ Resilience & Feasta, The Foundation for the Economics of Sustainability 11 th May 2011
Dec 30, 2015
Pensions & Resilient Investment
David Korowicz
Risk/ Resilience &
Feasta, The Foundation for the Economics of Sustainability
11th May 2011
Pensions
►We are naturally concerned about our future welfare-food, shelter, health, security, infrastructure- and increasing expectations of discretionary consumption.
►State pensions first introduced in 1889 (Bismark)-a feature of a new kind of economy.
►Pensions are the means by which people directly, or via employers and governments, defer current consumption to invest, via financial markets, in expected future consumption of goods and services.
►In a Pay-As-You-Go system, assumption society can support welfare into the future.
►Currently widespread concerns:
Demographic changes
Underfunding- 75% DB plans in Ireland
DB DC0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
64%
48%
25%
28%
4%
6%
4%16%
Alternatives
Cash
Property
Fixed Income
Equities
Investment in financial assets is growth & systems dependent
►Equities valuation (P/E) growthdependent.
►Servicing debt (interest+principal)Is a call on future growth
►The operational fabric of complex society is maintained or enhanced
►The operational fabric includes:
Critical infrastructure, supply chains,monetary stability, global discretionaryincome... (€72 billion IAPF data 2009)
Welfare & Macro-System Stability
Globalised Economy
►Self-organised
►Growth adaptive
►De-localising & Integrating
►Increasing Complexity
►Increasing Co-dependence
►Increasing production flow rate
Understood through Non-equilibrium thermodynamics
National economies exist via integration with globalised economy
Three largest Occupational Groups
UK Census 1911 UK Census 2008
Domestic Service Sales Personnel
Agriculture Middle Managers
Coal Mining Teachers
Food
Ratio of food expenditure to income
Urban Britain 1904* UK Household Survey 2008
63% 10.4%
Primary food production-a few % of population
*British Board of Trade (1904)
in Poverty in Britain in 1904: An early social survey re-discovered Gazeley & Newel PRUS Working paper 38/ 07
Occupation, Energy, Food
TransportationTransportation
Oil & Natural Gas
EELLEECCTTRRIICCIITTYY
Potable & Waste WaterPotable & Waste Water
Emergency ResponseEmergency Response
Government IITT &&
TTEELLEECCOOMM
Banking & FinanceBanking & Finance
Infrastructure Interdependencies
Switches, control systems
Storage, pumps, control systems, compressors
e-commerce, IT
Pumps, lifts, control systems
Signalization, switches,control systems
e-government,IT
Medical equipment
Water for cooling, emissions control
Water for production, cooling, emissions control
Fire suppression
Cooling
Fuel transport, shipping
Fuel transport, shipping
Chemicalstransport
Transport of emergency personnel, injured, evacuation
Co
mm
un
ica
tion
s
SCADA
SCADA
Trading, transfers
SCADA
Co
mm
un
ica
tion
s
Location, EM contact
Generator fuels, lubricants
Heat
Fuels, lubricants
Fuels, Heat
Currency (US Treasury; Currency (US Treasury; Federal Reserve )Federal Reserve )
DOE;DOE;DOTDOT
Regulations & enforcement Regulations & enforcement FERC; DOEFERC; DOE
Personnel/Equipment Personnel/Equipment (Military)(Military)
Fin
an
cin
g, re
gu
latio
ns
, & e
nfo
rce
me
nt
Fin
an
cin
g, re
gu
latio
ns
, & e
nfo
rce
me
nt
SEC; IRSSEC; IRS
FEMA; DOTFEMA; DOT
DOTDOT
EPAEPA
Detection, 1st responders, repair
Fin
an
cin
g &
po
licie
sF
ina
nc
ing
& p
olic
ies
Financing & policiesFinancing & policies
Miriam Heller, NSF (2003)
Critical Infrastructure
Economies of Scale
Institutions of Trust
Monetary Stability& Intermediation
Production flows
Energy & Resource flows
Behaviour adaptation
Conditions maintaining stability at risk
Highly Unstable Credit System & Imbalance
Peak Oil Peak Food
Even this assumes
stable prices, investment,
general system stability
Energy declines implies reverse economic growth-unless substitute/ efficiency
Reduced energy flows forces a positive feedback on energy flows
Implications-financial assets
(McKinsey &WEF 2010)
►Debt cannot be serviced in real terms
►Global banking system insolvent (real)
►Debt deflationary spiral+higher prices+interest rate hikes ►deflationary cyclone
►Rapid decline in discretionary consumption
►Global banking contagion (derivative links) Leading to supply-chain contagion
►Rising monetary opaqueness
►Tiny exit window
►Pensions in financial assets doomed
Time
Be
lie
f in
no
gro
wth
/co
lla
ps
e EmpiricalEnergy & food pricesWarningsStock & bond markets
ActionsAsset dumpingNew AssetsEmergency measures
Psychological Confidenceto Fear
EmpiricalEnergy & food pricesWarningsStock & bond markets
ActionsAsset dumpingNew AssetsEmergency measures
Psychological Confidenceto Fear
Adaptation opportunity
Government & central banks unlikely to be prepared
Critical Infrastructure
Economies of Scale
Institutions of Trust
Monetary Stability& Intermediation
Production flows
Energy & Resource flows
Behaviour adaptation
We are 100% invested in one view of the future
It is untenable
By habituation, our dependencies, thus vulnerabilitiesobscured
What would we do, in the final days of macro-systemstability to protect our future welfare?
Resilient Investment
Resilient investment Resilient investment is the conversion of current financial and other assets adaptiveto large-scale market and general welfare stability into assets that serve to protectthe foundations of personal and societal welfare into the future should that stability collapse.
►Core Assets
►Localisation
►Social Capital
►Human Capital
►Co-dependency & interdependence
►Natural Capital
►De-financialise
►Low complexity
Definition
Investment Considerations
►Timing
►Discount Rate & investment returns
►Resilient investment in not green investment
►Avoidance of stranded assets
►Limited vehicles for fast conversion