Will the Lost Generation in America Impact Sovereign Wealth Asset Allocation?
Sovereign wealth funds are typically long-term investors; they can wait out financial storms and purchase assets when it is most opportunistic. Sovereign funds have been actively investing in the United States for decades, recently more in the past seven years. The slowdown in the U.S. economy has reinforced the message to sovereign funds to look elsewhere and diversify. Economies with high growth rates, low unemployment, favorable ownership rights, and sustainable demographics usually correlate to robust GDP growth and low political risk. The message in 2000 was to diversify globally. The message remains the same.
The answer to the title is yes. The next generation in the United States is facing a bleak financial future as unemployment among youth is substantially high and growing.
This increases political risk, lowers investors’ confidence, and will lead to contractions in GDP.
With the high levels of unemployment for young people, it has spurred them to live at home, consume fewer goods, delay marriage, and in the aggregate purchase less property. In addition, the lost generation is known for taking large amounts of student debt which places burdens on the Federal Government and consumption spending.
Sovereign wealth funds consume this data and make assumptions, granted the United States is still the largest market for investments; other countries have been gaining traction. In our belief, sovereign funds will select companies that have significant company exposure to overseas markets. What do Morgan Stanley, General Electric, and AES Corp have in common? They all have significant presences outside of the United States. Companies that rely on U.S. elastic consumption will suffer as long as unemployment, especially among the youth runs high.