How investors are allocating capital across markets and asset classes to capture ‘very long-term trends’New research from Investcorp explores institutional investors’ sentiment and allocations regarding the most pressing economic trends
NEW YORK, Oct. 17, 2019 /PRNewswire/ — When asked to select the most compelling trends driving global economies and the consequent investment landscape over the next 30 years, institutional investors overwhelmingly cited an aging population as the most significant trend with nearly eight in ten (78%) selecting the demographic shift, according to a new poll. Artificial intelligence (AI) and machine learning ranked second (69%), followed closely by the impact of climate change (66%).
Investcorp, a leading global provider and manager of alternative investment products, in partnership with Mercury Capital Advisors, a leading institutional capital raising and investment advisory enterprise, IMD Business School and ICR, a leading strategic communications and advisory firm, today launched the results of a new study, “What’s Next? Investment Trends for the Future.” The poll 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 recognize and have started planning accordingly for the market forces that will influence investment portfolios and society in the years to come,” said 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.”
Nearly 8 out of 10 (78%) 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%) than public markets (26%), with more than half of the allocation to private markets manifesting itself via private equity (38%) and real estate (21%) 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%) than public markets (25%). Those who did invest through private markets preferred to deploy capital through venture capital (44%) and private equity (34%). 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%) compared to public markets (27%). 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%), infrastructure (25%), venture capital (21%) and real estate (15%). Respondents claimed that this trend will peak between 2034-2036, which was later compared to other trends surveyed.
Other popular trends were urbanization and smart cities (selected by 42%) and redefining global trade (40%). Figure 1 shows the ten trends ranked in the order of importance, as selected by respondents.
Urbanization and smart cities
Among the top five trends identified, this theme counted the highest percentage of investor access via private markets (67%) and the lowest access through public markets (20%). Private markets allocation is relatively even among private equity (26%), real estate (25%), venture capital (25%) and infrastructure (17%).
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%) and public markets (43%). This trend also saw private equity as the main private market asset class to deploy capital (45%). Participants believe that this trend will peak between 2023 and 2024, the earliest period among all topics surveyed.
Timing of Predicted “Peak” Investment Period Influenced by Seniority
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 urbanization and smart cities.
“The data shows that those who drive the investments can have a very different opinion to those who act,” said 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% to public securities, while redefining global trade, with a predicted peak in less than five years, had a 43% allocation to public markets.
Alan Pardee, Managing Partner at Mercury Capital Advisors, added: “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.”
Methodology: The “What’s Next? Investment Trends for the Future” study was commissioned by Investcorp, respondents were approached by Mercury Capital Advisors, and the data was collected and analyzed by IMD Business School, to investigate key trends that investors believe would shape the global economy over the next 30 years, and how they would seek to gain exposure to these trends within their investment portfolios. The survey received responses from 185 investors representing more than US $10 trillion in AUM across a range of institution types including: pension funds, sovereign wealth funds, foundations, endowments, insurance companies, consultants, funds of funds and family offices. Approximately 60% of the respondents were senior executives at their organizations, identifying themselves as CIOs, heads of investment groups, managing directors and partners. Two thirds (66%) of survey participants managed portfolios with an alternative/private markets tilt, with the remainder (34%) having a traditional/public market tilt.
About IMD Business School
At IMD, we develop leaders who transform organizations and contribute to society. We are an independent academic institution with Swiss roots and global reach, established by business leaders for business leaders.
Led by an expert and diverse faculty, we deliver Real Learning Real Impact through a unique combination of teaching, research, coaching and advisory services. Challenging what is and inspiring what could be, we are the trusted learning partner of choice for ambitious individuals and organizations.
Based in Lausanne (Switzerland) and Singapore, IMD has been ranked in the top five for executive education worldwide for 15 years and in the top three for the last eight years (Financial Times). IMD is the only Swiss business school and one of less than a hundred globally to hold the coveted “triple crown” of accreditations from AACSB, EFMD EQUIS and AMBA, the gold standard for global best practice. Learn more at http://www.imd.org