The investment implications of demographic change
Author: Sandro Pierri
Seismic demographic shifts are presenting the asset management industry with both challenges and opportunities, writes Sandro Pierri, CEO of BNP Paribas Asset Management.
Asset allocation decisions are being fundamentally altered by major demographic trends, including ageing populations, the rise of younger investors and the burgeoning middle class in emerging markets. Between now and 2050 the world’s population is expected to increase by two billion to 9.7 billion, while those aged 65 and over - currently the fastest growing age group - are forecast to have outnumbered those aged 15-24.
These seismic demographic shifts present the asset management industry with both challenges and opportunities. At BNP Paribas Asset Management, we believe that asset allocation decisions must be reflective, focusing on these structural trends that are expected to significantly affect economies and redefine business.
That is why in May this year we conducted a survey together with Coalition Greenwich, a strategic benchmarking, analytics and insights provider for the financial services industry, to explore the investment implications of demographic change among institutional and wholesale investors across Europe, Asia and the US.
The findings emphasised link between demographic shifts and asset allocation considerations, as well as the extent to which they are intertwined with the ever-quickening pace of technology and the focus on sustainability, which itself requires a fundamental re-allocation of capital from the investment management community.
Our research demonstrated the changing attitudes of clients and end investors, and their increased desire to embrace new technology, enabling them to have better, faster access to their investments. This, alongside the findings that 50% of institutional and intermediary investors believe that there is a significant shift in their clients’ preferences for digital engagement as a result of demographic change, makes a strong case for the opportunities in technology within the investment industry.
Healthcare in focus
The improved understanding of the implications of ageing populations in developing markets, combined with the COVID-19 pandemic that caused a global health and economic crisis, have unsurprisingly led global investors to focus increasingly on the investment opportunities in healthcare. The survey found that 95% of Asia-and Europe-based investors and 75% of those in the US saw healthcare as an important future investment sector.
Our healthcare-focused investment teams, both in active listed equities and passive exchange traded funds, are seeing significant opportunities in the various healthcare sub-sectors such as biotechnology, life sciences and healthcare technology. As these demographic changes are likely to accelerate further, the importance of these areas is likely to continue to increase. Indeed, almost all survey respondents identified healthcare as being a significantly attractive investment theme for the coming years.
Growing investment opportunities in emerging markets
Although demographic change is undoubtedly a global phenomenon, there are notable differences between regions. Parts of Asia and Africa in particular are seeing rapid population growth, in contrast to developed Europe, North America and countries such as Japan, that are seeing rapidly ageing populations and stunted demographic growth.
It is not surprising therefore that emerging market population growth was deemed an ‘extremely important’ aspect of demographic change for investment strategy by half of respondents based in Asia, compared to 21% in Europe and 15% in the US.
The investment opportunities in these regions, whether in sectors such as healthcare, infrastructure or technology, telecoms and IT are growing rapidly, driven by population growth and a burgeoning middle class that will underpin strong consumption and economic growth.
Despite the economic and geopolitical uncertainties that many associate with emerging markets, especially against a global backdrop of inflationary pressure, investors cannot afford to ignore the investment opportunities that such markets offer.
Shift to thematic investing continues
Demographic changes are resulting in new underlying trends and macro conditions, unsurprisingly resulting in significant growth in the popularity of thematic investing, a trend that looks set to accelerate further. At BNP Paribas Asset Management we are experiencing this continued shift to thematic investment as our clients seek to address the specific challenges facing our world and benefit from the opportunities offer by these longer-term trends as part of a diversified investment strategy.
Global population growth and consumption, combined with the energy transition, an increasing understanding of the importance of protecting biodiversity, and building circular economies all create significant opportunities for sustainability-focused investment managers looking to achieve growth and returns in the long term. Investment strategies are therefore increasingly being built around these themes, enabling investors to focus on different, specialised sectors that are benefiting from or coming into focus as a result of these major underlying changes, including demographics.
Finally, it is worth reinforcing that while demographic changes do present certain challenges, they also create new opportunities. Asset managers need to be adaptable and forward-looking to effectively capitalise on the trends unfolding before us as a result of such changes. It is our role as long-term investors to develop appropriate strategies to enable our clients to continue to benefit from long-term sustainable returns by capitalising on the opportunities that these changes present.
Sandro Pierri has been CEO of BNP Paribas Asset Management since July 2021 and has more than 30 years’ experience in the asset management industry.
Seismic demographic shifts are presenting the asset management industry with both challenges and opportunities, writes Sandro Pierri, CEO of BNP Paribas Asset Management.
Asset allocation decisions are being fundamentally altered by major demographic trends, including ageing populations, the rise of younger investors and the burgeoning middle class in emerging markets. Between now and 2050 the world’s population is expected to increase by two billion to 9.7 billion, while those aged 65 and over - currently the fastest growing age group - are forecast to have outnumbered those aged 15-24.
These seismic demographic shifts present the asset management industry with both challenges and opportunities. At BNP Paribas Asset Management, we believe that asset allocation decisions must be reflective, focusing on these structural trends that are expected to significantly affect economies and redefine business.
That is why in May this year we conducted a survey together with Coalition Greenwich, a strategic benchmarking, analytics and insights provider for the financial services industry, to explore the investment implications of demographic change among institutional and wholesale investors across Europe, Asia and the US.
The findings emphasised link between demographic shifts and asset allocation considerations, as well as the extent to which they are intertwined with the ever-quickening pace of technology and the focus on sustainability, which itself requires a fundamental re-allocation of capital from the investment management community.
Our research demonstrated the changing attitudes of clients and end investors, and their increased desire to embrace new technology, enabling them to have better, faster access to their investments. This, alongside the findings that 50% of institutional and intermediary investors believe that there is a significant shift in their clients’ preferences for digital engagement as a result of demographic change, makes a strong case for the opportunities in technology within the investment industry.
Healthcare in focus
The improved understanding of the implications of ageing populations in developing markets, combined with the COVID-19 pandemic that caused a global health and economic crisis, have unsurprisingly led global investors to focus increasingly on the investment opportunities in healthcare. The survey found that 95% of Asia-and Europe-based investors and 75% of those in the US saw healthcare as an important future investment sector.
Our healthcare-focused investment teams, both in active listed equities and passive exchange traded funds, are seeing significant opportunities in the various healthcare sub-sectors such as biotechnology, life sciences and healthcare technology. As these demographic changes are likely to accelerate further, the importance of these areas is likely to continue to increase. Indeed, almost all survey respondents identified healthcare as being a significantly attractive investment theme for the coming years.
Growing investment opportunities in emerging markets
Although demographic change is undoubtedly a global phenomenon, there are notable differences between regions. Parts of Asia and Africa in particular are seeing rapid population growth, in contrast to developed Europe, North America and countries such as Japan, that are seeing rapidly ageing populations and stunted demographic growth.
It is not surprising therefore that emerging market population growth was deemed an ‘extremely important’ aspect of demographic change for investment strategy by half of respondents based in Asia, compared to 21% in Europe and 15% in the US.
The investment opportunities in these regions, whether in sectors such as healthcare, infrastructure or technology, telecoms and IT are growing rapidly, driven by population growth and a burgeoning middle class that will underpin strong consumption and economic growth.
Despite the economic and geopolitical uncertainties that many associate with emerging markets, especially against a global backdrop of inflationary pressure, investors cannot afford to ignore the investment opportunities that such markets offer.
Shift to thematic investing continues
Demographic changes are resulting in new underlying trends and macro conditions, unsurprisingly resulting in significant growth in the popularity of thematic investing, a trend that looks set to accelerate further. At BNP Paribas Asset Management we are experiencing this continued shift to thematic investment as our clients seek to address the specific challenges facing our world and benefit from the opportunities offer by these longer-term trends as part of a diversified investment strategy.
Global population growth and consumption, combined with the energy transition, an increasing understanding of the importance of protecting biodiversity, and building circular economies all create significant opportunities for sustainability-focused investment managers looking to achieve growth and returns in the long term. Investment strategies are therefore increasingly being built around these themes, enabling investors to focus on different, specialised sectors that are benefiting from or coming into focus as a result of these major underlying changes, including demographics.
Finally, it is worth reinforcing that while demographic changes do present certain challenges, they also create new opportunities. Asset managers need to be adaptable and forward-looking to effectively capitalise on the trends unfolding before us as a result of such changes. It is our role as long-term investors to develop appropriate strategies to enable our clients to continue to benefit from long-term sustainable returns by capitalising on the opportunities that these changes present.
Sandro Pierri has been CEO of BNP Paribas Asset Management since July 2021 and has more than 30 years’ experience in the asset management industry.
