Investor Insights

August - 2020

This month, we focus on the new economy, which we view with a medium-term perspective; 2022 and beyond. Investment opportunities made now in future-vision companies will start to reward the bold from 2022. So, we look at two, related breeding grounds for the new economy companies: education and government innovation initiatives.

Investment in education

Big things are happening; changes that will not only enable the new economy to come into being but will change the nature of learning forever. As we move into the era of Industry 4.0, accelerated by the roll-out of 5G, the nature of work will change, and the talents demanded will require the re-skilling of many millions of people. To put this into perspective, the OECD estimates (article) that more than one billion jobs (a third of jobs globally) are likely to be transformed by technology in the next decade. In the nearer term, the WEF (article) estimates that more than half of all employees will need some form of re-skilling by 2022.

The big questions that arise from these data are:

How can individuals and governments, impoverished by the pandemic, afford the re-skilling process?

By what process will all this education take place? Are the facilities and educators available?

We have been seeking firms that can meet these challenges while offering investors the opportunity for good returns. Our search for such organizations will continue in the months ahead.

Expected average reskilling needs across companies, by share of employees, 2018-2022

Source: Future of Jobs Survey 2018, World Economic Forum.

Government innovation initiatives

On the broader subject of innovation, in 2013 the EU launched the Horizon 2020 program. Here as we approach the Fall of 2020, we can see that the program has spawned, or encouraged, hundreds of initiatives. New initiatives are still being announced almost daily, though the recent focus has been on combating the corona virus. Individual states within the Union, encouraged by the Horizon 2020 program, have launched their own initiatives one going so far as to offer permanent residency, leading to citizenship, for investors in companies designated as ‘innovative’. Indeed, one of the firms we are following, has been so designated. Any readers interested in an EU citizenship should talk to us.

Other countries too, have launched similar innovation – encouraging programs. Local to us, the UAE has consistently topped the MENA region for innovation, ranking 36th in the world ahead of many European countries. As long ago as 2014 the UAE launched a series of initiatives that have been constantly updated. The fourth track of these initiatives focuses on innovation in education – the main thrust of our newsletter this month.

However, all these national initiatives beg the question of why they are necessary. While investors naturally seek out firms that are both innovative and with a scalable business model, they tend to only look at firms that have ‘traction’. For many new firms, the pandemic has stalled their growth, but not invalidated their potential.

Of course, firms have investment policies, but the world has changed in front of our eyes. The WEF research above points to massive changes yet to come, yet many investors are staying in cash instruments with fixed-income returns near zero, and unstable currencies while, at the same time, many entrepreneurs are working hard to bring to fruition innovative solutions to meet the new economy. Is it not time for a new investor paradigm?

Fintech education

Our featured company is front and center in the innovation and education space. The firm has established an intelligent platform that allows investment directly into human capital, with returns based on earnings. The earnings parameter is important in estimating returns since the salaries of highly skilled people will almost certainly accelerate faster than income generally as the demands of Industry 4.0 start to bite.

The firm offers an opportunity for investors to define the types of people in which they want to invest, and to benefit from returns expected to be in the mid-to-high teens. There are many used cases available on this platform, including the possibility for firms fighting ‘the war for talent’ to get ahead of the competition by investing in high-potential learners, but still protecting their investments even if those learners fail to join them or leave early. It is also interesting to note that, as these equitable investments in people are not loans, and do not attract interest, they are fully Sharia-compliant.

Their business model offers several risk-mitigating factors, including low default rates protected by insurance. As the business model is infinitely scalable, the investment opportunities are unlimited. Direct investment in human capital may well be one of the biggest new investment markets of the 2020s. Beyond this unlimited opportunity, the firm is also seeking additional shareholders to fund marketing and technical scale-out. One or two shareholders are even offered the opportunity to benefit from permanent residency, leading to citizenship, in this Schengen-country given the government-designated innovative nature of this company. Interested in any of these opportunities? Talk to us today.

The next steps

Where to next?

The pandemic lockdown has led to a new digital way of life for office workers and for those in education – both learners and teachers. Earlier reluctance to embrace these online options has been replaced by an acceptance that such approaches are not only viable but may, in some respects, be preferable.

Firms and educators are exploring new economy options and we are actively seeking to support firms in these fields. Are you looking for innovative opportunities for investment, and find our vision for the future compelling? Talk to us today.

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