Aberdeen Standard Investments chief economist Jeremy Lawson told the 2018 Financial Standard Chief Economists Forum that retirees' influence on populism is a major dilemma for asset managers globally.
Since the Global Financial Crisis retirees have revised down their income targets and this, in part, helped evaporate political consensus. Retirees have not been able to chase the beneficial policies that once promised better incomes, Lawson said.
Retirees have also increasingly become part of the populist sphere and this is a symptom of wider economic trends, Lawson said. Populism is not something aligned purely to event risk, he added.
As an economist Lawson was reticent to focus on politics but said it must now play an increasingly important role in the thinking of asset managers worldwide.
"The political environment shapes the policy environment; the policy environment shapes the economic environment; and the economic environment shapes the market environment," Lawson said.
Also critical to investment manager strategies is the debt servicing capacity of several countries, the chief economist explained.
"Aggregate public and private sector debt in the global economy today, it's larger as a share of global GDP than it was in 2007. This matters because if we're trying to think about the outlook for long-term interest rates, you have to think about the debt servicing capacity," Lawson said.
"Average growth is a lot lower than it was in the pre-crisis period. Even despite the cyclical growth recovery we've been seeing, 2018 will fall well short of the growth rates we saw in some of the boom years before the financial crisis. Capacity to clear debt servicing is a lot lower than before."
He said this means there's significant constraint on how high interest rates can rise. He added there are several countries which have accumulated "a lot of private sector debt over the past 10 years."
"One thing we know reliably is that wherever debt has accumulated the most, when the downturn hits, those countries where deleveraging is more intense the growth will be slower. Take this into account when thinking about where to invest and the returns you will get," Lawson said.