2KKRVIEWPOINTS Global populations are aging – on this there is little debate. However,what that means for growth, investment and social cohesion hasbeen less often discussed. Profound demographic and technological changes are transformingthe societies where we live and work globally. On the one hand,the large post-World War II generation is retiring and working agepopulations are shrinking in many countries. This demographicshift alone will likely translate into slower growth, lower interestrates, and subpar fnancial returns unless nations increase the sizeof their labor forces and/or improve productivity. At the same time,the Fourth Industrial Revolution is redefning key industries andthe meaning of work. While nations can leverage the productivity- enhancing advances of this digital revolution or increaseimmigration to stimulate growth, both tactics can be controversialand disruptive. Indeed, unless there are reforms to the social contractbetween governments, employers and employees, immigration,technological innovation and other factors can reinforce social,economic and industrial disorder, fuel populist backlash, and buildopposition to pro-growth solutions to these demographic headwinds.In this paper, we address the economic implications of aging, thelevers countries may pull to counteract these challenges and theinvestment opportunities that arise as a result. In particular, in thisglobal “new normal”, which Henry McVey, KKR’s Head of GlobalMacro & Asset Allocation and Markets Risk and CIO of the KKR Bal- ance Sheet, has described in prior publications, we believe investorsmay consider: Seek investment products that ofer income or yield in a lowerreturn environment. Henry McVey expects slowing working agepopulation growth, lower rates, and full valuations to lead to lowerexpected nominal returns in the future. Given this view, he believesthat this backdrop will continue to fuel demand for yield-orientedinvestments such as infrastructure and asset-based lending as wellas for certain global private equity investments. Lean in globally to long-term themes consistent with thesedemographic changes like health and wellness, urban renter- ship, travel and leisure, digital content and media, productivityenhancing technology and the search for income yielding fnan- cial products. The aging of the population, rise of millennials andthe sharing economy driven by an increasingly mobile youth cohortsupport these trends. Monitor and heed political attitudes and geopolitical risks, par- ticularly focused on possible reactions to high levels of social,economic and technological disruption, high inequality and eco- nomic stagnation. Public distrust in key business and political insti- tutions is high. The Fourth Industrial Revolution, radical transparencyof the Internet and social media, combined with high inequality andrising immigration are producing political volatility and populism in What Does Population Aging Meanfor Growth and Investments 3KKRVIEWPOINTS many nations. Investors must pay attention to these factors as theymay impact how well nations can develop policies to counteract thedemographic economic headwind.In the frst section of this paper, we delve further into the impact ofdemographic shifts on the economy and investments. In particular,we look at aging and its impact on growth, consumption, urbanizationand consumer preferences. Following this global review, we considersteps nations have and may continue to take to counteract these de- mographic headwinds, including leveraging technological innovationand immigration to build larger and more productive workforces. Wethen delve deeper into demographic trends in six countries— Mexico,China, U.S., U.K., Germany and Japan.The Impact of Aging on Economic Growth and Investing Per the United Nations, population aging – the increasing share ofolder individuals in the population – is one of the most signifcantsocial transformations of the twenty-frst century. At a high level, weexpect global population aging to result in slower economic growth,lower fnancial returns, lower interest rates, increased urbanization aswell as shifts in consumption and housing patterns. Each of these willhave important investment implications. The median age of the population will rise in many countries globallyas fertility rates – the average number of children born per woman,decline – while longevity increases, just as the massive generationborn after World War II retires. Between 2015 and 2030, the globalpopulation aged 65 and older is projected to grow by more than 60%(Exhibit 1)compared to working age population growth of 14%. By2020, for the frst time in human history, people aged 65 and overwill outnumber children under age fve(Exhibit 2) .EXHIBIT 1 The Global Population Continues to Grow Older…0% 5% 10% 15% 20% 25% 195 0 196 0 197 0 198 0 199 0 20 00 20 10 20 20 20 30 20 40 20 50 20 60 20 70 20 80 20 90 Proportion of the Global Population Aged 65 or Older, % Data as at June 23, 2017. Source: United Nations, Haver Analytics. AUTHORS PAULA CAMPBELL ROBERTS Director, Global Macro & Asset Allocation +1(646) 560.0299 paula.campbellroberts@kkr KEN MEHLMAN Member, Global Head of Public Afairs CONTRIBUTORS Ludo Bammens Neil R. Brown Aidan T. Corcoran Kareem Dakak Bryan Kam Brian C. Leung Frances B. Lim Logan Mackie Henry H. McVey Rebecca J. Ramsey Vance F. Serchuk Angad Singh “Per the United Nations,population aging – theincreasing share of olderindividuals in the population– is poised to become oneof the most signifcant socialtransformations of the twenty- frst century.“ 4KKRVIEWPOINTS EXHIBIT 2 …As Fertility Rates Decline and Longevity Increases 4% 6% 8% 10% 12% 14% 16% 19501960197019801990200020102020203020402050 Young Children and Older People as a Percentage of Global Population, 1950 to 2050 Under Five65 and Over Data as at June 23, 2017. Source: United Nations, Haver Analytics. While Europe has historically been the oldest region as measured bythe over 65 proportion of the population, Asia and Latin America arerapidly progressing through this demographic transition. Indeed whileless than eight percent of Asians were aged 65 and over in 2015, thatnumber is expected to increase to 12.1% in 2030. Europe will remainthe oldest region for the next 15 years and North America will ranksecond oldest, with their over 65 population shares rising to 22.8%and 20.7%, respectively. By country, China‘s prior one-child policyhad accelerated the aging demographic. We expect China’s elderlyshare to rise to 17.1% in 2030, from 10.1% in 2015. And Japan is andwill remain home to the world’s most aged population with 30.3% ofthe population aged over 65 by 2030.1 1 An Aging World: 2015,” International Population Reports, U.S. Census, March 2016. See Section 3 for further Japan discussion. 2 Data as at January 31, 2017. Source: Japan Ministry of Internal Afairs and Communications, World Bank, Haver Analytics. EXHIBIT 3 While Europe Has Historically Been the Oldest Region,Asia and Latin America Are Aging Rapidly 3.5% 7.9% 17.4% 7.6% 15.1% 12.5% 4.4% 12.1% 22.8% 11.8% 20.7% 16.2% AfricaAsiaEuropeLatinAmericaand theCaribbean NorthAmerica Oceania Over 65 Years Proportion of the Population by Region, % 20152030 Data as at June 23, 2017. Source: United Nations, Haver Analytics. EXHIBIT 4 By Country, Japan Is and Will Remain Home to theWorld’s Oldest Population 26.6% 21.3%19.2% 18.4% 15.0% 10.1% 8.2%6.7% 5.8% 30.3% 26.8%25.7% 22.0%20.4% 17.1% 13.6% 10.2%8.5% Ja pa n Ge rm an y Sp ainU.K . U.S . Ch ina Br az il Me xic o Ind ia Over 65 Years Proportion of the Population by Country 20162030 Data as at June 23, 2017. Source: United Nations, Haver Analytics. Importantly, improved longevity and the need to fund higher retire- ment and health expenses have led much of this older generation towork longer in recent years. For example, in Japan the labor forceparticipation rate has increased as those aged 55 or older are in- creasingly conc