Investors Are Watching These Major Trends — And Allocating Accordingly
Institutional investors surveyed by Investcorp cited digitalization and climate change as among the top forces driving markets and their investment strategies.
Investors view digitalization, the aging population, and climate change as the most important trends shaping the global economic landscape over the long term.
This is according to Investcorp’s second annual global trends survey, expected to be released Wednesday. The views are likely to shape allocation behavior, with Investcorp finding a “strong correlation” between respondents emphasizing an influential trend and their propensity to allocate funds to that sector.
According to respondents, the rise of automation, digitalization, and artificial intelligence is the most important trend driving markets. This belief was reflected in respondents’ portfolios: Fifty-three percent of respondents said they are allocating funds to automation, digitalization, and AI in both the public and private markets.
Survey respondents said they believed this trend will shape the global economy for the next two decades, peaking 10 years from now. Among the different technological innovations, investors pointed to digital infrastructure as producing the greatest impact in the next three years. Rishi Kapoor, co-chief executive officer of Investcorp, defined digital infrastructure as the continued enablement of e-commerce, including logistics, warehouses, fulfillment centers, data centers, and broadband architecture and connectivity.
“All of these are going to be the basic building blocks around which the digital infrastructure of the future is going to be anchored,” he said. “So it is a pretty significant investment opportunity.”
However, investors also saw some risks in investing in emerging technology, citing threats such as cyber risk, national data laws, and social debates on the ethics of AI.
The next biggest trend, according to the survey, was the aging population. While two-thirds of investor respondents said they expect this demographic trend to remain influential, it fell in the order of importance from 2019 to 2021, according to the report. Still, 44 percent of respondents said they are targeting this theme in through investments in the private and public markets, while two-thirds of respondents predicted that the aging population to remain an important trend until 2050.
“It is likely that investors’ outlook is driven by the fact that humanity’s aging will impact regions and countries both differently and at different stages through 2050, and is also perhaps indicative of both the large funding gap that exists today and the equally attractive investment opportunity that it presents over the long term,” the report said.
Respondents believed that local immigration laws, “black swan events such as pandemics, natural disasters, or war,” and a change in life expectancy or birth rates could change the current outlook.
The third-most influential trend was the impact of climate change, according to respondents. Just under two-thirds said they were targeting climate change strategies in the public and private markets.
Respondents said they expected the impact of climate change to be significant over the next two decades and saw the greatest opportunity in renewable energy and clean technology in the short term. Risks to their outlook included “global political will,” technological advancements in battery storage and hydrogen, and changes in the condition of the Gulf Stream, a major ocean current that helps to regulate the earth’s climate.
Elsewhere in the survey, Investcorp found that investors still prefer using external managers in both public and private markets as opposed to direct investing. In fact, 38.6 percent of respondents said they exclusively used external manager to gain exposure to top industry trends, while 18.4 percent employed a combination of external managers and direct investments.
“Investors recognize that, with an external manager, they can source that expertise, that specialization, better than they can bring to the table themselves,” Kapoor said.