Nearly eight-in-10 (78 per cent) of institutional investors regard an ageing population as the most significant trend that will affect investment allocations in the next 30 years, according to a new survey by Investcorp.
Artificial intelligence (AI) and machine learning ranked second (69 per cent), followed closely by the impact of climate change (66 per cent).
The survey – What’s Next? Investment Trends for the Future – which was conducted in partnership with Mercury Capital Advisors, an institutional capital raising and investment advisory enterprise, IMD Business School and ICR, a strategic communications and advisory firm, explores institutional investors’ sentiment and allocations regarding the most pressing economic trends that are expected to shape the global economy over the next three decades.
“As responsible stewards of capital, institutional investors recognise and have started planning accordingly for the market forces that will influence investment portfolios and society in the years to come,” says Rishi Kapoor, Co-Chief Executive Officer, Investcorp. “Identifying opportunities aligned with super-secular trends is one part of the process. Allocating across the right markets, asset classes and time horizons is also critical, especially during periods of economic and geopolitical uncertainties. In the last decade, we have seen investors increasingly seek exposure to private markets as an optimal channel for tapping long-term trends as part of a diversified investment strategy. The findings from our poll support the thesis that this dynamic shall continue and we will of course look to capture many of these trends as we seek to drive long-term value creation for our investors.”
Aging population – Nearly 8 out of 10 (78 per cent) of investors polled cited an “Aging Population” as the top trend that will shape the global economic landscape. Participants were more likely to invest in this trend through private markets (62 per cent) than public markets (26 per cent), with more than half of the allocation to private markets manifesting itself via private equity (38 per cent) and real estate (21 per cent) based strategies. Participants believe that this trend will peak around the years 2030-2032.
AI and machine learning – Participants were more than twice as likely to invest in this theme through private markets (58 per cent) than public markets (25 per cent). Those who did invest through private markets preferred to deploy capital through venture capital (44 per cent) and private equity (34 per cent). Participants believe that this trend will peak around the years 2030-2032.
Impact of climate change – Climate change ranked as the third most significant trend. Participants were more likely to invest in the impact of climate change through private markets (48 per cent) compared to public markets (27 per cent). There was a more balanced allocation within private markets across asset classes compared to other trends polled with investments being deployed through private equity (28 per cent), infrastructure (25 per cent), venture capital (21 per cent) and real estate (15 per cent). Respondents claimed that this trend will peak between 2034-2036, which was later compared to other trends surveyed.
Urbanization and smart cities – Among the top five trends identified, this theme counted the highest percentage of investor access via private markets (67 per cent) and the lowest access through public markets (20 per cent). Private markets allocation is relatively even among private equity (26 per cent), real estate (25 per cent), venture capital (25 per cent) and infrastructure (17 per cent).
Of particular note, this trend saw the widest range related to the predicted timing of its peak, which was clearly divided based on level of seniority. Senior investment executives believe that this trend will peak around 2027, while junior investment executives believe it will be around 2036.
Redefining global trade – Among the top five most important trends investors cited, redefining global trade generated the most equal representation of allocation between private markets (47 per cent) and public markets (43 per cent). This trend also saw private equity as the main private market asset class to deploy capital (45 per cent). Participants believe that this trend will peak between 2023 and 2024, the earliest period among all topics surveyed.
The survey also found clear differences of opinion between senior and junior professionals related to the timing of trend peaks. In fact, senior-level investor professionals believe that each of the ten trends will peak earlier than their younger, junior-level counterparts, with the highest disparity of nine years noted for urbanisation and smart cities.
“The data shows that those who drive the investments can have a very different opinion to those who act,” says IMD Professor Arturo Bris. “My colleague, Professor Jennifer Jordan, sees a variety of companies creating ‘shadow boards’ consisting of non-executive employees working alongside senior executives on strategic initiatives. This leverages the younger groups’ insights, diversifies the perspectives that executives are exposed to, and provides future leaders with invaluable experience.”
A longer time horizon of a trend’s predicted peak also correlated with higher private markets allocations. The top four trends, each with a median predicted peak beyond 2030 allocated just 20-26 per cent to public securities, while redefining global trade, with a predicted peak in less than five years, had a 43 per cent allocation to public markets.
Alan Pardee, Managing Partner at Mercury Capital Advisors, adds: “The longer time horizons associated with private market investing compared to public markets is a key advantage for investing in mega-trends as each of these themes, notwithstanding redefining global trade, were all predicted to peak in 10 or more years.”