Pension Funds and Global Monetary Liquidity?

Whats the link? What do pension funds have to do with liquidity in the monetary markets?

A friend of mine, Rajat, mentioned this to me in a recent discussion. The funda starting from a very different problem. The ageing population in the west.

The percentage of oldies is going up in the west. Now all of these people need to be given pension. The pension to these people needs to come from the taxes paid by the current working population. Now the current population is declining, meaning that the working population is continuosly getting smaller. On top of that these idiots are not working as hard as the earlier generations did. So whats the result? The well known pension fund crisis! That in some time to come there will be a severe crisis in the payment of pensions to the elderly population.

So what do the pension funds do? They try to get a higher rate of investment on their funds. Consequently the investments get more riskier in anticipation of higher returns. A percentage of the pension fund monies find their way to Hedge funds and Mutual funds. Through these they go into developing economies, startup ventures, equity markets and so on. Thereby due to the pressure for higher returns, monies find their way to any place which can assure a higher rate of return. Thus the high level of liquidity in the world markets.

Some of these macro economic trends are quite interesting and least expected. Did you ever think that because there are more old men in Europe now, a startup would get funded in India?

-Kashy