Do Investment Firms Still Have A Future?

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Many people like the idea of setting up an investment company. The concept is pretty simple: people send you money and then you invest it in various assets on their behalf. 

However, investment companies are facing a problematic future. And there probably isn’t much that they can do about it directly. 

Problem 1: Demographics

For the last thousand years, the human population has been increasing. In the last 100 years, it exploded, nearly quadrupling in that time period. 

This process, though, isn’t going to continue forever. In fact, in some countries, there are signs that it’s already petering out. 

Take Japan, for instance. In 2018, its population actually began falling according to official estimates, because of the country’s shockingly low fertility rate. South Korea’s population is due to decline this year. And China is probably already in decline after decades of the one-child policy, although official figures remain suspect. 

This phenomenon is also happening on a global scale. In a few decades’ time, the population will start to fall, perhaps rapidly. 

If this happens, it’s bad news for investment companies. For the last century, we’ve been living on a rising tide of population. More people meant more demand, more workers, and generally more opportunities for brands. 

But now that’s going into reverse, it’s not clear what’s going to happen. Since Japan’s population began to stagnate in the 1990s, the country’s stock market has barely budged. We could see something happening in western markets, without immigration. 

Problem 2: Low Secular Returns

Low secular returns are another problem facing investment companies right now. Currently, we’re operating in a world in which asset prices are already high. To justify those prices, the cash value of future goods and services they produce needs to be even higher. “A bird in the hand is worth two in the bush,” as the saying goes. 

But many economists believe that such an outcome is unlikely. They believe that we’re entering an era of low returns. The availability of goods isn’t keeping pace with rising asset values. So, eventually, prices are going to have to stabilise or even fall. Investment companies looking for returns, therefore, are going to have a tough time.

Problem 3: Regulatory Requirements

Lastly, investment companies are having to cater to various government regulatory requirements. According to https://www.lei-lookup.com/ these are expanding, with new rules, such as the need for an LEI number, being introduced regularly. 

Regulatory burdens may also prevent investment companies from pursuing conventional tax arrangements. It may no longer be possible to offshore services and then offer them to domestic customers. 

The Good News

It’s not all doom and gloom, though. According to https://www.newswise.com/, there will still be opportunities. 

One of the biggest developments will be the emergence of smart capital. Despite a falling human population, the machine population is going to rise. And that is going to make more consumption available to people who are still alive.

Furthermore, new technologies may improve the utility of goods. For instance, medicine could go the same way as the music industry – becoming more streamlined, digital, and effective.  

Future Investment Trends

Predicting how investing is going to change in the future is always a challenge, and nobody gets it quite right. After all, who would have predicted the retail investment boom of the last 50 years? Almost nobody. 

However, there are some tantalizing prospects on the horizon – things that investment firms could use as a basis for their enterprises. 

NFT Boom

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For instance, we’re likely to see the rise of NFT collectibles. You can think about these as being the digital equivalent of original artwork or vintage cars, but much more challenging to counterfeit. 

NFTs are digital assets ascribed to owners via the blockchain. What’s interesting about them is that they are non-fungible. In other words, you can’t exchange like-for-like. In many cases, the owner of the NFT is the sole proprietor. Only they can buy or sell the digital asset on the blockchain, nobody else. 

The cool thing about this technology is that it creates scarcity in the digital space. If you want to purchase one, you have to offer a price that makes the sale worthwhile to the seller and beats all other bids in the market. 

Investment houses that specialize in NFTs are highly likely to make money in the future. Buying up potentially popular NFTs today could result in substantial profits in the future.

Special Purpose Acquisition Companies (SPACs)

A few years ago, SPACs were all the rage. Now they look like they might be returning.

The goal of these companies is clear: to trade publicly to raise funds to buy lucrative private companies. It’s done as a form of regulatory arbitrage. It’s a good way for small firms to go public without having to endure all of the usual legal nonsense that goes with it.

For some entrepreneurs, this type of investment approach makes a lot of sense. However, you need to be good at identifying which companies are likely to become winners in the future.  

ESG Investing May Become More Popular

The academic research on the benefits of ESG investing is not particularly compelling. Most people who’ve really thought about it can’t actually see much of an advantage in investing in these companies. However, it is trendy right now, particularly among institutional investors. 

The goal of ESG investing is to provide private investors with returns when they invest in ethical or socially responsible enterprises. It differs from conventional investing, which simply seeks out the highest profits. In the short term, returns for these companies may be higher than the rest of the market, primarily due to demand. However, if you plan on getting into this space, you’ll need a sound exit strategy. Elevated returns are unlikely to last for very long. 

Gamification

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Lastly, some innovating investment companies may seek to take advantage of the gamification of investing – something that we saw during the GameStop saga. Retail investors like the idea of playing around with their money – gambling it, essentially – and are looking for platforms that will allow them to do it. 

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