By Michael S. Fischer, ThinkAdvisor
Investcorp, which provides and manages alternative investment products, recently asked institutional investors which trends would drive global economies and the resulting investment landscape over the next three decades.
The results were unambiguous. Seventy-eight percent of respondents cited an aging population. These were the other trends survey participants pointed to:
2. AI and machine learning – 69%
3. Impact of climate change – 66%
4. Urbanization and smart cities – 42%
5. Redefining global trade – 40%
6. Personalized medicine – 27%
7. Electric and autonomous vehicles – 23%
8. Depleting natural resources – 22%
9. Privacy – 13%
10. Population growth in Africa – 13%
“As responsible stewards of capital, institutional investors recognize and have started planning accordingly for the market forces that will influence investment portfolios and society in the years to come,” Investcorp’s co-CEO Rishi Kapoor said in a statement.
“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.”
Mercury Capital Advisors, an institutional capital raising and investment advisory enterprise, surveyed 185 investors representing some $10 trillion in assets under management across a wide range of institution types, and IMD Business School, based in Switzerland, analyzed the data. ICR, a strategic communications and advisory firm, joined in the study’s release.
Timing the peak
The survey also found clear differences of opinion between senior and junior professionals about the timing of trend peaks.
Senior-level investor professionals — some three in five respondents were senior executives at their organizations — believe that each of the 10 trends would peak sooner than did their junior-level counterparts. The highest disparity was nine years for urbanization and smart cities.
“The data shows that those who drive the investments can have a very different opinion to those who act,” IMD professor Arturo Bris said in the statement.
“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.”
The data showed that 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% to 26% to public securities.
In contrast, redefining global trade, with a predicted peak in less than five years, had a 43% allocation to public markets.
“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,” Alan Pardee, managing partner at Mercury Capital Advisors, said in the statement.
The big trends
Sixty-two percent of the investors who cited aging population as the top trend that would shape the global economic landscape said they would invest in this trend through private markets, while only 26% said they would do so through public markets.
Thirty-eight percent of the allocation to private markets manifested itself via private equity- and 21% via real estate-based strategies.
Participants expected this trend to peak around 2030–2032.
Some six in 10 participants said they were likely to invest in the AI and machine learning theme through private markets, while a quarter would do so through public markets. Forty-four percent of those going the private market route preferred to deploy capital through venture capital and 34% through private equity.
Participants predicted that this trend would also peak around 2030–2032.
About half of respondents said they were likely to invest in the climate change theme through private markets, versus one-quarter who would do so through public markets.
In addition, there was a more balanced allocation within private markets across asset classes compared with other trends polled: private equity, 28%; infrastructure, 25%; venture capital, 21%; and real estate, 15%.
Respondents claimed that this trend would peak later than other trends surveyed, between 2034 and 2036.
Among the top five trends identified by institutional investors, the urbanization and smart cities theme counted the highest percentage of investor access via private markets, 67%, and the lowest access through public markets, 20%.
Private markets allocation was relatively even: private equity, 26%; real estate, 25%; venture capital, 25%; and infrastructure, 17%.
In addition, this trend produced the widest range related to the predicted timing of its peak. Senior investment executives believed that this trend would peak around 2027, while junior investment executives believed it would do so around 2036.
Among the top five most important trends investors cited, redefining global trade generated the most equal representation of allocation: 47% of respondents preferred private markets, while 43% opted for public markets. Forty-five percent of the former said they would deploy capital through private equity.
According to participants, this trend will peak earlier than any of the other topics surveyed, between 2023 and 2024.
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