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PROPORTION OF POPULATION AGED 60+: 2012 AND 2050


Source: United Nations


allocation of the assets by European pension funds to equities fell to a historic low of 39%. Another important long-term structural change


is likely to be a shift in investor demand by high net- worth individuals towards corporate bond markets. Retirees used to favour government bonds because of the low-risk income returns associated with these instruments, but a decade of historically low interest rates has jaded that preference. The yield on 10-year US Treasuries stood at 7.8% in January 1995, but has averaged only 3.5% from January 2003 to January of this year. This has been inadequate for people to draw a living income from. At present the corporate bond market in most


countries is dominated almost exclusively by institutional buyers, but the growing number of wealthy individuals around the world who are ageing could add another source of demand for these securities. Already in Australia, FIIG Securities – the country’s biggest fixed- income broker – has recently opened the corporate bond market to retail investors by cutting the minimum investment from A$50,000 to A$10,000. Five years ago, FIIG slashed the minimum parcel


size from A$500,000 to A$50,000. FIIG chief executive Mark Paton has described current retail awareness of corporate bonds as “very low”, but he believes the “massive group of baby boomers who are retiring” and regulatory changes would persuade many advisers to


consider a broader class of assets. FIIG has now opened the corporate bond market to a massive pool of retail investors by cutting the minimum investment again – from A$50,000 to A$10,000. According to FIIG, there are 1.8 million Australians


with at least A$200,000 in investable assets, excluding their home and non-self-managed superannuation funds. If this is attractive to investors it will reverse a trend. Research from the Federal Bank of Australia in 2012 found that from 2001 to 2010 the net share of inflows into corporate bonds from households was -1% compared with a share of 27% between 1961 and 1970. The largest appetite for corporate bonds in


Australia and many other countries may well come from external not domestic demand, particularly when the opportunities at home are limited. The Australian data showed that the demand for corporate bonds from non-residents has soared, rising from 11% in 1970, to 67% in the ten years to 2010. Despite the short-term volatility expected in bond


markets as global monetary conditions go through a painful normalisation process, demographic factors across Asia will lead to a long-term uplift in the prospects for fixed-income investments. Advisers need to prepare for this now.


Brian Sturgess is the managing editor of World Economics: worldeconomics.com


Brian Sturgess FAMILY OFFICE: THE FUTURE 73


INVESTMENT, WEALTH & SECURITY


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