Leverage longevity by 'turning savers into investors', says BlackRock's Fink
GLOBAL - In launching BlackRock's new marketing and branding drive on Wednesday, chairman and chief executive of the $3.5trn (€2.6trn) asset management giant, Larry Fink, called on individuals, corporations, the finance industry and governments to look through current uncertainties and put cash to work in the economy.
"At every level," he said, "we must turn savers into investors."
In a speech with FDR-like overtones at the Council on Foreign Relations in New York, Fink did not back away from the challenges facing the global economy. Big trends are disrupting markets, economies and societies - and he singled out "the Great Ageing" as the biggest.
"Living longer should be a blessing, but many older people are now afraid of outliving their savings," he said, pointing out that, in the US alone, underfunding of Social Security and Medicare over the next 75 years exceeds $40trn, corporate defined benefit plans are 33% underfunded, on average, and corporate defined contribution plans are in an even worse position, at 40% underfunding.
But the Great Ageing is particularly painful because it is coinciding with "the Great Deleveraging", itself compounded by fiscal austerity aimed at addressing deficit spending, and "the Great Migration" - of global growth from developed to emerging economies.
Today, that fuels anxiety and income disparity as globalisation's winners outpace its losers, for all its promise of future prosperity and stability.
"To sum it all up, we're in a perfect storm," he concluded. "Fixation on the short term is blinding society to [these] powerful forces re-shaping our world."
Fink drew attention to how concern about the future was driving up short-term savings. FDIC data show bank deposits growing from $6trn in 2004 to $10trn today, and growing three-times faster in the first nine months of 2011 as through the whole of 2010.
But even in China people are keeping "far too much of their savings in short-term deposits", he added.
"Whether it comes from an individual, a corporation or a pension fund […] you need to get off the sidelines and get your money working again," said Fink.
It was the only way pension funds will meet their commitments, he said, and individuals had to understand the cost - to themselves and to society - of sitting in cash, even with low inflation.
"No-one talks about that cost: they all talk about the cost of volatility, or the cost of short-term decisions - but never the cost of sitting on cash," he said.
If savers are turned into long-term investors, Fink argued, we go some way to addressing the pressures of the Great Ageing.
"Longevity is an asset to be leveraged, not a curse," he said. "I'll be the first to say that the asset management industry has not done a great job of helping investors take a long-term view."
He outlined the industry's responsibility to educate investors about "new sources of income, like dividend-paying stocks or higher-yielding corporate bonds", and about mixing passive, active and alternative investments to get away from sterile 60/40 portfolios.
"We need to help public and private pension funds face up to the adjustments necessary to meet their obligations - such as revisiting outdated, over-restrictive investment guidelines," he said.
But he also made a call to corporate sponsors of pension benefits to meet their "moral responsibility" to educate their employees.
"Shifting from a defined benefit to a defined contribution plan doesn't absolve them of that responsibility," he insisted, criticising governments for taking short-termist positions.
He called for tax reform to encourage long-term investment, but also for governments to invest for returns that might not be realised for years - from updating "crumbling infrastructure" to research and education.
"It's our responsibility as leaders of business, finance and government," he concluded. "All of us must answer the call."