Dubai: Last week's efforts come from the promptings of a frequent writer to Mondial Money — The Poisonous Pen.

Normally a "sensation seeker" in looking for short-term dramas leading to 30-day (or longer) price crashes (a la BP, and Greek Sovereign Debt), Pen has recently moved into the theatre of the long-term view. What will make money in 25 years time?

An interesting thought which runs parallel to the current trend of fund managers leaning away from the geographic distinction of assets to the more thematic distinction.

Let's start with the year 2050, when my daughter will be the same age as I am now (give or take). On probability is she has a goodish chance to live beyond 100. A good diet and regular exercise will ensure a financial crisis if she doesn't get organised. No doubt about that. The future for our longer-living younger generation has "financial crisis" written all over it.

According to Pen, by 2050 there will be 9 billion people on planet earth with a $300-trillion (Dh1,103 trillion) GDP. That's a multiple of six to where we are today.

Key features of that population will include: enormous amounts of the sick, the old and the unemployed. A huge Middle Class of around 4 billion, and, according to Pen, "The divide between those who have and those who have not will increase, so will the divide between those truly educated and talented and those around the average. Mediocrity prevails."

Service providers

How to deal with this? For Pen he sees his long term portfolio as "about one half asset based [agricultural/forestry land, mines, infrastructure], one half reserves based [energy sources, commodities, licences] with some investments in operations such as device or food manufacturers, maybe a few blue chip service providers."

And what will this return? According to Pen: "In 25 years we will have 5-10+ times our initial investment. That is about equivalent to the nominal growth of the global economy and beats inflation by about a factor of three."

The problem today is picking the companies that can sale through the next 25 years unmolested by bad management. Easier to pick the themes.

Theme one, the obvious: emerging economies over the emerged economies. Another vote for Bric and keep an eye out for the frontier countries with large population.

Theme two is the consumer spider, with legs spreading through all forms of consumption; "more people than ever will be eating, communicating, consuming, travelling and having fun.

"Energy availability will not be the problem due to the multitude of quasi unlimited alternative energy sources. Food demand, commodities and infrastructure bottlenecks may be a problem. Entertainment — that includes outdoors, social networks, communicating and television — will explode and become the main preoccupation of 6-7 billion people. The rest will be suffering," Pen says.

Food has to look like an obvious 2050 need given its current "hard-to-get" situation, but for Pen; "it is not easy to invest very long term in the food industry".

"Agricultural commodities do not allow for long-term investment and related companies are too risky. We therefore invest in two ways: prime agricultural land and forestry/timber plantations. Prime agricultural land produces a 3-7 per cent return per year, depending on productivity, management and crop/year and forestry about the same. They both have maturity profiles well beyond 20 years. What I like is that after 20 years of returns similar to bonds, we still own the land".

Alternative energy

Energy is another "obvious" 2050 need, but, again not easy: as Pen points out: "Investing in alternative energy is too risky since we would need to predict winners and losers in the energy sector. We therefore invest in those with the largest reserves of traditional energy sources: oil and gas. These companies or governments will need to adjust to and cooperate with the likely alternative energy winners and on the way".

 

The writer is Chairman of Mondial Financial Partners.