17 Jan 2023
Investcorp, in partnership with IMD Business School today announced the results of the third iteration of its annual survey, “What’s Next? Investment Trends for the Future.” The survey polled global institutional investors, ranging from pension funds to family offices, on their sentiment and allocations regarding the most pressing secular trends that are expected to shape the global economy over the next three decades. The survey maps the wider demographic, resource, technological, environmental and geopolitical factors that are driving the global economy and what that means for current and future investment opportunities.
The survey identified Digitization & AI (=1 last year), Renewable Energy, Energy Security and Aging Population as the highest scoring investment trends in terms of current and growing importance in the next three decades. The results suggest a slight deviance in results between senior/older and junior/younger respondents, with more senior investors viewing Digitization & AI, Renewable Energy, and Energy Security as most important and more junior investors considering Digitization & AI, Energy Security, and Aging Population as most important.
Across the population surveyed, the top 5 megatrends identified were:
- Digitization and AI
- Renewable energy
- Energy Security
- Ageing Population
- Electric Vehicles and Battery Storage
Regional trends – more convergence than divergence
|Top three megatrends in Europe||Top three megatrends ex- US & Europe||Top three megatrends in US|
|Digitization & AIAging PopulationEnergy Security||Digitization & AIEVs and Battery StorageRenewable Energy||Digitization & AIEnergy SecurityRenewable Energy|
Digitization & AI
The survey once again identified Digitization & AI as the dominant megatrend according to investors, which is recognised as the number 1 megatrend across all regions surveyed – Europe, Middle East, and the US. Over 8 in 10 major global institutional investors stated they are currently investing in this space or will do in the future. Investors globally strongly believe that Digitization & AI will enable companies to provide solutions to pervasive problems and will enable a wave of innovation in the years to come.
It will come as no surprise that the data identifies Energy Security as a key theme for both Europe and the US – driven and exacerbated by the current conflict between Russia and Ukraine. The conflict has dramatically increased energy and commodity prices, aggravated the post COVID-19 supply-side shock, caused additional disruption to supply chains, and helped lead to a surge in inflation, all of which is being felt most strongly across European and US markets. It has now become an imperative for Western markets to invest in domestic energy production to strengthen and ensure its own energy security. Survey data suggests that investors anticipate the Energy Security theme to continue well beyond the current conflict and believe it will lead to opportunities to invest in domestic energy production in Europe and beyond.
Investors were more divided across regions on the other megatrends shaping our world. For instance, a number of the European and Asian investors (most likely driven by Japanese and Chinese investors) are concerned with the trend of an Aging Population, whilst this is less of a concern for the US and Middle Eastern regions due to their younger demographic. For both Europe and Asia, investment into the Healthcare sector is one of the more obvious investment opportunities to engage with this long-term trend.
The nuanced difference between Net Zero / Decarbonization and Renewables
The survey highlights how the themes of Net Zero / Decarbonization and Renewables do not have a consensus regional view. For the US and Europe, survey data suggests that Net Zero / Decarbonization and Renewables are thought to be key investment trends that will define the next 30 years. However, the data suggests that there is a disconnect between Renewables and Net Zero / Decarbonization in both Asia and the Middle East. Looking back on the most recent COP27 conference, it is clear that there are strong regional views and opinions when it comes to Net Zero / Decarbonization and how quickly different regions should look to decarbonize. Contrastingly, when it comes to Renewables attitudes differ given the significant investment in large-scale renewables projects underway in both Asia and the Middle East. Varying economic considerations and energy reliance on fossil fuels across the regions explain the survey results, however, there is a clear decarbonization opportunity in Asia and the Middle East as it’s home to countries with some of the largest carbon emission challenges.
Is the generational gap around sustainability closing?
Past narratives have focussed on how the younger generation of investors are more concerned than senior investment professionals about sustainability and the future of the planet when it comes to making investment decisions. Notably, survey data suggests that this is no longer the case.
|Top Trends for Senior Investment Professionals||Top Trends for Junior Investment Professionals|
|Renewables (Rank 2)Energy Security (Rank 3)EV and Battery Storage (Rank 4)Transition to Net Zero / Decarbonization (Rank 8)||Energy Security (Rank 2)EV and Battery Storage (Rank 4)Renewables (Rank 6)Transition to Net Zero / Decarbonization (Rank 9)|
Whilst previously it may have been easy to state that there was a generational gap when it came to sustainability related issues, the reality is that a larger proportion of the investment population is actually aligned on these issues and arguably, the survey results indicate that Decarbonization and Renewables are now even more important to the senior investment population than the more junior population with themes such as Workplace & Workforce Shifts emerging as trends that are of interest to that demographic.
Rishi Kapoor, Co-Chief Executive Officer for Investcorp said: “Flow and demand for capital, market and sector forecasts as well as the regulatory environment are all key when thinking about future investment themes. Our most recent survey provides a great insight into how global investors are assessing and weighting the different global megatrends that are shaping the world’s markets. It is clear that for global investors, Digitization & AI is a key trend that will shape the global economic landscape over the long term and our data suggests that companies that leverage leading edge technologies for solving universal or critical problems are going to be as highly investible in the decades to come as they have been in recent years. Even though the sector has had a very difficult year it remains an attractive investment domain today and investors surveyed believe it will ride out the current macro-economic storm. This provides some hope and opportunity for growth capital and investors that predominantly invest in the technology space.”
Hazem Ben-Gacem, Co-Chief Executive Officer for Investcorp, added: “The megatrends identified in our most recent survey reflect the current and future investment priorities of some of the world’s most knowledgeable and insightful global investors. The breakdown of the trends suggests that investors are acutely aware of the way that megatrends may impact their portfolios and are preparing to mitigate threats and seize opportunities that are emerging across a range of factors. In the case of Renewables and Decarbonization, we have strong conviction in this space as we see a market with increased demand and supply issues, potential for huge innovation and a favourable regulatory backdrop.”
Investcorp and IMD Business School compiled the study to investigate key trends that investors believe will 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 investors from across the world representing a range of institution types including pension funds, sovereign wealth funds, foundations, endowments, insurance companies, consultants, funds of funds and family offices. Respondents included senior executives at their organizations identifying themselves as CIOs, heads of investment groups, managing directors and partners. Survey participants included those who managed portfolios with private markets and public markets tilts.
A link to the survey data can be found here.