Investing in a Changing World
Many of the greatest opportunities for investors in our fast-changing world will be found outside traditional financial markets.
The Fourth Industrial Revolution is accelerating, including through the shift to digital hastened by the pandemic. This global wave of innovation, spanning everything from e-commerce to biotech to clean energy, will have a disproportionate impact on economies outside of North America and Western Europe, driving new investment opportunity.
As technology has evolved from an investment silo into an agent of disruptive innovation in every industry, some of the most exciting breakthroughs are taking place in the economies of Asia, Latin America, Africa, CEE and the Middle East.
These markets are at the forefront of remote education, telemedicine and digital payments as they bypass now-obsolete models to go straight to modern solutions.
Structural inefficiencies such as the financing gap for growth companies left by risk-averse traditional banks, or infrastructure bottlenecks, present outsized opportunity for private investors to put capital to work.
While many countries outside of North America and Western Europe have suffered more during the pandemic, the underlying shift in global growth and consumption from older to younger economies is unstoppable.
Today, the share of global GDP attributable to markets that GPCA represents is 44%, and 45% of global household wealth is located in economies outside of North America and Europe. In addition, these regions will account for two-thirds of global consumption growth over the next decade.
Asia, Latin America and Africa are also home to the vast majority of the world’s digitally native young who are now entering the global workforce and will increasingly drive innovation.
As the reality of climate change becomes ever clearer, the battle will be fought in China, India, Indonesia, Brazil, Nigeria and the world’s most populous nations.
Tackling this challenge is providing a framework for private capital investors to identify opportunity across the world, from renewable energy, sustainable materials and the circular economy, to sustainable agriculture.
We understand these opportunities far better today than two decades ago when the concept of emerging markets first caught the imagination of investors.
Over the past 20 years, private equity and venture capital investors have learned that outperformance comes from adapting the best ideas from around the world to local contexts, not recycling models within a top-down approach to investing.
Now they first seek out fundamental shifts to invest behind, such as energy transition and digitalization; then specific strategies, such as credit and direct lending; and industries that stand to benefit from those macro trends, from off-grid solar to data centers and logistics.
In this context, generating returns depends on expertise within sectors and a proven ability to execute, irrespective of geography.
Our markets are also benefitting from greater stability and liquidity with the entry of institutional investors committing capital for the long term. Sovereign wealth funds and pension plans are not only backing fund managers, but also co-investing alongside GPs and acquiring private capital-backed businesses directly.
Recent events have led some to dismiss the case for investing outside of traditional markets, but the scale of opportunity looking forward is huge and unprecedented. A growing share of future returns will accrue to those that look beyond today’s easy assumptions to recognize entrepreneurial talent and novel business models in new forms and places.