(July 16, 2012) — The growing global obesity epidemic could offer institutional investors useful returns, as longevity improvements push out liabilities and create black holes in pension funds.
The increase in the obese and overweight population – and the rate at which it is growing – will provide a range of opportunities for investors, according to a report by Bank of America- Merrill Lynch (BofA Merrill Lynch).
“Global obesity is a mega-investment theme for the next 25 years and beyond,” said Sarbjit Nahal, equity strategist at BofA Merrill Lynch Global Research. “Obesity may be the most pressing health challenge facing the world today and efforts to tackle it will shape thinking by policy makers and in boardrooms around the world.”
BofA Merrill Lynch identified four key areas: Pharmaceuticals & Healthcare; Food; Commercial Weight Loss, Diet Management & Nutrition; and Sports Apparel & Equipment. These themes are to have global reach – and therefore global appeal – for pension fund investors struggling with liabilities that have been inflated by improvements in longevity of members, despite some being in questionable health.
Dawid Konotey-Ahulu, co-CEO of consulting and actuarial firm Redington, said: “We are witnessing a rapid and significant decline in much of the world’s health profile. Someone has observed that ‘as the world starts to live like America, increasingly, it will die like America’. There will undoubtedly be a profound, negative, impact on corporations and their pension plans as they grapple with the chronic illnesses and impaired work capacity of their employees.”
Around the world 500 million people are obese and 1.4 billion are overweight, the bank said. Obesity is the fifth greatest cause of death, leading to 2.8 million fatalities each year. Worldwide prevalence of obesity doubled between 1980 and 2008, according to the World Health Organization.
The epidemic, though mainly prevalent in developed markets for the moment, has begun spreading further around the globe alongside the burgeoning middle classes in emerging markets. This is adding to healthcare bills for governments and is likely to spur both public and private sectors into action to tackle the problem.
The bank’s report said: “The annual cost of obesity-related illness in the US alone is estimated at US$190 billion, or nearly 21% of the country’s annual medical spending. The future health, social and economic costs could be overwhelming, especially given high levels of global childhood obesity and growing obesity in emerging markets.”
Obesity levels have tripled in Europe over the last 30 years, but the BRIC nations have also been hit by the epidemic. BoA Merrill Lynch cited Brazil’s population as being 16% obese and on track to hit levels seen in the United States by the end of the decade; Chinese cities suffering up to 20% obesity levels; and 25% of all Russian women being obese.
“As happened with smoking, it is likely that the growing cost burden of obesity on governments, corporates and wider society will spur collective action and greater regulation,” the report said. “BofA Merrill Lynch expects widespread scrutiny of lifestyle aspects associated with obesity including food and drink, schools, work environments, insurers, tackling sedentary lifestyles, and encouraging increasing physical activity.”
Click here for the full report.