Shane Whelan

1
Investing in the Future

• Shane Whelan
• Friends First Asset Management

2
A Brave New World

• Our living standards will at least double in two
  decades.
• Pension savings will fuel the productivity
  revolution.
• However pensioners will find it difficult to lay
  claim to the increased productivity enabled by
  their capital.
• The capital markets will become more unbundled
  and diverse - single project financing,
  alternative risk transfer (ART).

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Humbled by Predictions

• Inventions/Innovations
• 1899 Commissioner of US Patent Office stated
  everything that can be invented has been
  invented
• Computers
• IBMs Watson in the 1940s forecasted a world
  market for up to 5 computers.
• Inflation
• Schiller, Germanys economics minister, in 1968
  inflation is as dead as a rusty nail.

4
Growth in World GDP per Capita, 1000 -2000
Source Cornucopia Increasing Wealth in the
Twentieth Century, J. Bradford DeLong, 2000
http//econ161.berkeley.edu
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Industrial Worlds GDP per Capita, 1870 -1995
Source Economics Making Sense of the Modern
Economy, The Economist, 1999.
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History Outlines a Range of Possibilities

• Developed World economies can post couple of
  decades of 3.5-4 real growth.
• Standard of living increases faster than measured
  productivity (extra 1 or so p.a.).
• 5 growth ? standard of living doubles every 14
  years. 3½ growth ? standard of living doubles
  every 20 years. 1½ growth ? standard of living
  doubles every 50 years.

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Pension Savings unlocking Productivity Gains

• We demand increasing productivity per worker as
  greater capital invested per worker.
• The capital provider lays claim to increase in
  productivity.
• All in well in the world of pension savings.
• NO!

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Inflation A Tale of Social Tension
Source From Canals to Computers The
Friends First Guide to Long-Term Investment in
Ireland, Shane Whelan, 1999.
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Creative Destruction

• Arbitrary redistribution of wealth within
  economies.
• Economically powerful do well - rest rely on
  their goodwill.
• Labour (if in short supply) will be empowered.
• Migration
• Toleration
• Capital has no enforceable claim to future
  production.

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IT is it

• Moores Law computing power doubles every 18
  months.
• Computing costs falling exponentially (perhaps
  halving every 12 months).
• Leads to prolification new uses- 30 years ago
  just 50,000 computers in world. Over half workers
  in US now use one.
• Constantly driving change - service sector is
  revolutionised. When over 50 penetration then
  revolution (economic historian Paul David of
  Stanford).

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The Productivity Miracle
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The Productivity Miracle
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The Productivity Miracle
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Measured Labour Productivity in Private Sector
Source Economics Making Sense of the Modern
Economy, The Economist, 1999.
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Growth in the Unmeasured Economy

• Productivity slowdown in service sector.
• Unit of output no. of hours worked.
• 10-15 move out of agriculture industry into
  services. (Services represent 70 or so of GDP in
  leading economies).
• Productivity understated ? inflation overstated.
• Fed. Reserve of Philadelphia says productivity
  understated by 2-3 since 1974.

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Investment Markets

• Direct link to any class of securities.
• Direct share in book, project, brand, anything
  that has a measurable return.
• Limited Liability was great financial innovation
  of 19th century then Alternative Risk Transfer
  (ART) could be the financial innovation of the
  21st Century.

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Conclusion

• On average living standards to double within next
  20 years.
• Result of heavy investment funded largely by
  pension savings.
• Pension savings cannot lay claim to the diffuse
  productivity gains - most are unmeasured and
  wealth redistribution to be lottery-like.
• Future pensioners must rely on goodwill of
  economically powerfulas always.

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Investing in the Future

• Shane Whelan
• Friends First Asset Management