I occasionally dabble in speculative (some might even say imaginary) asset classes. One that doesn't really exist yet is the market for securitizing individuals, or groups of individuals.
While this market does conceptually exist in various forms -- credit cards & microfinance provide unsecured debt, the real estate market is sort of a proxy for individual incomes, and government bonds are perhaps the largest aggregation of groups of individuals within geographic boundaries -- as yet there isn't a market for taking individuals (or groups of individuals) public.
While there are a few notable folks like David Bowie, the Beatles, or Michael Jackson who have executed a form of intellectual property securitization, these are infrequent & unusual examples.
(UPDATE & CLARIFICATION: many folks in the comments are focusing on the literal interpretation of my headline, namely taking *one* individual public. while i'm neither for or against that concept, what i'm really talking about here is more likely the creation of a derivative instrument that maps to the future income of an *aggregate group* of individuals. i severely doubt any one person is going to be enslaved as a result of an individual IPO, but regardless that's not really what i'm getting at... the calculation for an individual market cap below is merely an exercise by which to arrive at an estimated value for the asset class.)
If we were to create an asset class for "human capital" securities, how might we calculate it?
Well, we would probably add up the total market cap of all "stocks" in this potential market... which would be the equivalent of the collective market cap of ~6 billion people.
So what is the market cap for an individual?
Let's assume the following:
- in developed economies, average wage earner makes ~$25K/yr
- the average individual works for ~40 years during their lifetime
- they save an avg of ~10% of income per yr (probably optimistic)
- their savings earns ~6% and inflation is ~2% (net int. rate = 4%)
Ok, so now the average wage earner in a developed economy might earn a cool million in revenue during their lifetime ($25,000/yr * 40 yrs = $1,000,000). If they saved 10% of their income, they'd be able to put away $100K, which if invested appropriately might be worth ~$250K by the beginning of their retirement. finally, let's assume that a present value (PV) calculation for that $250K using a discount rate of 4% results in a value of $50K at the beginning of the wage earner's working career.
If this is a reasonable way to calculate it (not sure if i've made any obvious errors here; please comment if so and i'll revise), then the market cap for an individual might be around $50,000. if you wanted to be generous, it might even be north of $100K. if you're pessimistic on the savings rate, then it could be as low as $10-25K (or even zero i guess?).
anyway, i think i'm close enough to go on record in saying the Atomic Unit of Happiness = The Value of an Average Human Life = $50,000 (roughly).
if this is correct, then the overall market value of the asset class representing Individual Income Futures is $50,000 * 6 Billion people = $300T (T=Trillion)
now here is where it gets interesting...if we assume that at least a 1/3 of the world isn't earnng $25K per year, but perhaps only around $5K per year, and another 1/3 might only be making $500/yr or less (the Bottom of the Pyramid, or BOP), then what we're really saying is that the overall asset class is currently only worth around $100T, and is undervalued by about $200T due to the current state of healthcare, education, housing, and overall economic opportunities for 4 billion of the world's 6 billion people.
imagine then if you could invest in the undervalued portion of the asset class, and then enable access to healthcare, education, and housing for those $4B people. you'd have one of the best and largest investment opportunities ever.
Fifty thousand here, two hundred trillion there... pretty soon you're talking real money.
hope to see some of you folks at Social Capital Markets 2009 :)
(included below is my previous presentation on Securitizing Happiness):