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Economics of automation and robotics
Automation and robotics are the buzzwords in industry right now. While robotics has been around in manufacturing, white-collar jobs are now starting to be automated. Financial services firms in Australia want to take out cost, improve quality and reduce risk using automation.
For the ordinary person on the street, the question is whether they and their children will have jobs in the future. Or will the introduction of robotics and automation allow us to stop doing the mundane parts of our jobs and focus on the interesting parts such as creation, socialisation, etc?
What does it mean for the investor? Robotics have allowed companies to produce more, at better quality, and at a lower cost. While some businesses and industries did not survive, investors (and society) have benefited through productivity gains.
The asset management industry and financial stability
The topic of whether or not Australian banks are well capitalised has been running hot. However the asset management sector has largely gone unnoticed when talking about financial system stability. In Australia, total assets held by asset managers (including superannuation funds, insurers and units trusts) are 75% of the assets held by banks. In fact the burning question at the moment when talking about asset management seems to be whether or not you need $1m to have a comfortable retirement. In addition, industry professionals vent plenty of frustration when talking about the apathy the Australian population seems to have towards saving for retirement. However this apathy could be one of the factors that mitigate the systemic risk from the asset management sector, according to this informative article from the RBA. (more…)
Catastophe bonds surge
There has been a lot of press recently on the growth of the catastrophe bond market. Investors, in particular pension funds, are jumping in seeking attractive yields and potentially greater diversification. How well do investors understand catastrophe bonds? Are they the “free lunch” they appear to be?
This post examines three aspects of catastrophe bonds:
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Catastrophe bonds and how they work
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Typical returns on catastrophe bonds
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Risks
SME lending – a sweet spot?
I keep reading about how viable, high quality small medium enterprises (SMEs) find it difficult to secure debt financing from banks. An OECD study of SME sector lending conditions found that credit was still constrained following the GFC. This is covered in the press from time to time, for example, see this article in the Financial Times. The situation also seems to occur in Australia according to this article in the Sydney Morning Herald. If high quality SMEs struggle to get debt funding, then surely this is a sweet spot waiting to be exploited. A SME loan fund can exploit this demand. Australia’s burgeoning superannuation sector could participate.
Risk Return Sweet Spot 