"In 2009 the small Alabama city of Pritchard, outside Mobile became the first city in America to stop paying pensions to its retired workers. For years the city had been warned that if it did not put more money aside its pension fund would run dry. It was even ordered to do so by the State court. The City Mayor ignored the court order, deciding it would be better to keep hospitals open, street lights on and paying teachers’ salaries. The additional money to fund the city pension liabilities simply didn’t exist. Many of the affected retirees have now filed for bankruptcy or gone back to work. This is the future across the developed world. This White Paper examines the future Global Pension Crisis and the opportunities it represents for the Asset Management industry". Sign up for all our monthly White Papers at- http://www.globalperspective.co.uk/#!white-papers Or email: - shane@globalperspective.co.uk

1. A Global Perspectives White Paper
Asset management &
the future Global
Pension Crisis
By Shane Brett,
Managing Director
Global Perspectives
www.globalperspective.co.uk
nd
Date 2 November 2012

2. Contents “Prichard is the future, we’re all on the same
conveyor belt. Prichard is just a little further
Introduction 2 down the road.”
Michael Aguirre, The New York Times, 22nd
The Future of Pensions 2 December 2010
What this means for Asset
Introduction
Management 4
In 2009 the small Alabama city of Pritchard,
Conclusion 4 outside Mobile became the first city in
America to stop paying pensions to its
retired workers.
For years the city had been warned that if it
did not put more money aside its pension
fund would run dry. It was even ordered to
do so by the State court.
The City Mayor ignored the court order,
deciding it would be better to keep hospitals
open, street lights on and paying teachers’
salaries. The additional money to fund the
city pension liabilities simply didn’t exist.
Many of the affected retirees have now filed
for bankruptcy or gone back to work.
The Future of Pensions
This is the future across the developed
world.
Private sector workers in rich countries
already know the days of defined benefit
pensions on retirement are long gone.
Employees in the private sectors have
realised that they are in charge of looking
after their own retirement. Their existing
employers will contribute something but are
in no way responsible for providing a
comfortable income on retirement nor will
they backstop the performance of their
private pension fund.

3. The big change over the next couple countries are in significant population
of decades will be in the public decline.
sector.
Populations in many European countries
This will be the inability of rich world have not saved anything whatsoever for
governments to fund their public retirement, leaving it wholly in the hands of
sector employee pensions. their governments to provide a satisfactory
income for their twilight years. These same
Governments across the rich world governments are now sinking under
have already accrued gigantic massive public debt.
unfunded pension liabilities, the
majority of which are of the defined The German economy may be healthy now,
benefit kind (i.e. guaranteeing a but its population is due to fall 15% by the
pension based on final salary). In middle of the century. Trying to maintain a
most cases these future liabilities high standard of living and pay generous
are not even included in national pension benefits will be impossible. It is no
debt figures. wonder they save so hard.
The slow realisation by both Train drivers in France famously retire at 50.
governments and their state In Poland army and military officers retire
employees that the money to fund after 15 years. 33 year old pensioners exist
their retirements does not exist, will across the country.
be one of the defining themes of the
next 30 years. Other countries are actually going
backwards. In an attempt at maintaining his
Rich governments are already declining popularity Putin’s Russia has just
finding it difficult to fund even completely scrapped employee
existing public services under contributions towards their pensions. This
crushing national debt. There is no from a country that already has 87
way they can feasibly fund additional pensioners for even 100 workers (and which
future pension liabilities as is forecast to reach 100 pensioners to 100
populations decline, birth rates workers by the end of this decade).
stagnate and life expectancy
increases. Worse, some governments have already
raided state and private pension funds to
In the US public pension funds from finance their existing economic difficulties
Illinois to Philadelphia to San Diego (for example Argentina & Ireland) leaving
are all under enormous strain. This their future national retirement funding
will exacerbate over the coming particularly precarious.
years as more people retire and live
longer, healthier lives. The future global pension crisis will likely
come with a bang and not a whimper. This
However, at least the US has a is because large voting numbers of older
replacement birth-rate. In Europe workers make reform unpalatable and
(outside of the UK, France & Ireland) unpopular. Politicians seeking re-election
birth-rates has plummeted over the will not suggest fundamental pension
last 4 decades. This has been reform. Unions will not allow it.
particularly marked in Eastern and
Mediterranean Europe where many
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Email: Shane@globalperspective.co.uk
Phone: +44 (0) 20 3239 2843

4. Instead state pension coffers around The hunt for yield will increase the demand
the world will simply run dry. Court for a variety of assets and investment types.
cases will be mounted by those This will expand the reach of Alterative
affected and probably won by them Investments (such as Hedge Funds) and
too - but that won’t change a thing. increase their allocation by retail investors.
The money to pay the rich worlds The long term nature of many pension
enormous unfunded pension investments may also mean opportunities
obligations does not exist. for Private Equity managers. Those
invested in long term company turnarounds
or stable infrastructural projects (roads,
What this means for Asset bridges etc) may be an attractive multi-
Management decade investment.
The future parallel commodities boom will
Why is this so relevant to the asset
also mean huge growth opportunities for
management industry?
resource focused managers. The 50%
increase in world population by mid-century
Public sector workers worldwide will
and the declining reserves of many
slowly come to realise what private
minerals, metals and energy will result in a
sector workers already know – you
huge increase in demand for these
are in charge of funding your
commodities and their related investments
retirement.
(e.g. mining service, technology and
exploration).
For those in Asset Management this
will be a very positive development.
This could be particularly prevalent in
agriculture and energy. The world’s
There will be a long term surge in
attempts to feed a burgeoning population
demand for successful fund
and provide cheap renewalable energy to its
managers, those who can generate
population, could dovetail nicely with an
Alpha and provide stable long term
expansion of investment in those areas by
returns.
global pension funds.
All this could mean an avalanche of
new capital into the industry. Far
more savings and investment will be
directed towards asset management Conclusion
as the rich world’s public sector
workers try and adequately fund Stein's Law tells us that "If something
their future retirement. cannot go on forever, it will stop".
Individuals will have to contribute This is what Pritchard, Alabama shows us.
more of their income. Governments
will be made to properly fund their The governments of the rich world do not
future (smaller) pension liabilities – have the financial assets to match their
their existing funding shortfalls unfunded pension liabilities. The
having been so comprehensively unthinkable can and will happen in the
exposed in the years ahead. years ahead.
Global Perspectives
www.globalperspective.co.uk
Email: Shane@globalperspective.co.uk
Phone: +44 (0) 20 3239 2843

5. Private sector workers already know
they are in charge of funding their Look out for our forthcoming e-book
retirement. In the years ahead, in Q1 2013 -
government workers will come to
realise this too. As people live “The 1% of the 1%” - The Future of the
longer, they will have to save far Hedge Fund Industry.
more for their retirement.
The long term nature of this
retirement trend indicates a bright To pre-order email:-
future for the asset management
industry. Shane@globalperspective.co.uk
The huge future demand for pension
investments represents an
enormous opportunity for asset
managers worldwide.
Sign up for all our monthly
White Papers at-
http://www.globalperspective.co.uk/#!wh
ite-papers
Or email: -
shane@globalperspective.co.uk
Global Perspectives
www.globalperspective.co.uk
Email: Shane@globalperspective.co.uk
Phone: +44 (0) 20 3239 2843