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Thematic investing focus: The education imperative

Simon Henry, CFA, Equity Portfolio Manager
Aaron Koh, Investment Strategy Analyst
2024-03-31
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The views expressed are those of the authors at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.

A variety of secular trends are spurring innovation and disruption in the global economy and creating what we believe are attractive thematic investment opportunities. In this series of articles, we take a close look at some of these trends, the breadth of the opportunity set and the related risks. 

In this article, our focus is on education, where we believe structural tailwinds and disruption will drive a decade of spending and growth unmatched by any since the post-World War II boom. Our definition of education covers a broad spectrum of learning experiences from cradle to career, spanning all stages in the development of human capital: the economic value of a person’s skills and knowledge. 

Among our key conclusions: 

  • Population growth will drive demand for education — especially in the developing world, where take-up of tertiary education has historically been low relative to the developed world.
  • The way we work is changing. Technological advances are creating an imperative for employees to upskill. Automation will render some job functions unnecessary — affected workers will need to retrain entirely.
  • The education industry itself is experiencing rapid change, driven by digitalisation and accelerated by the pandemic. The rise of online learning broadens access to education and creates opportunities for disruptive companies.  

Cheat sheet: key trends in education

Population growth — Within the next 10 years, the world’s population is projected to rise by 12%, to 8.5 billion, with most of this growth originating in the developing world.1 Education is already a key priority for governments, which typically account for the vast majority of spending on formal education such as schools and universities. Keeping pace with population growth will require significant investment. 

We see the concentration of population growth in emerging markets as a key driver for tertiary education (i.e., universities and vocational colleges). In 2020, over 600 million students finished secondary school, an increase of almost 30% in 20 years — with much of the growth driven by emerging markets.2 Currently, the percentage of students going on to tertiary education in emerging markets is much lower than in the developed world (Figure 1). But around the world, attainment of higher education is seen as a crucial underpinning of economic growth and a launchpad for social mobility. In countries like China, India and Brazil, there are significant policy tailwinds designed to encourage take-up of tertiary education. We expect this trend to continue, and to benefit not only universities and other higher-education institutions, but also associated businesses such as after-school tutoring, student loan companies and student-housing providers.

Figure 1
thematic-investing-focus-the-education-imperative-fig1

Case in point: Higher education in China 

Despite the headlines in recent years, a China-based operator of colleges and universities has managed to grow its student population significantly, benefiting from increased enrollment quotas from the government as well as a commitment to employability that sees high job-placement rates for its graduates. 

Example is for illustrative purposes only and not intended as an investment recommendation.

The changing face of the job market — Significant societal shifts, the energy transition, the rise of the digital economy and an increased demand for social services are altering the nature of work. Keeping abreast of these changes requires continuous reskilling and upskilling. Since 2015, skill sets demanded by employers have changed by 25%, and this is projected to increase to 50% by 2025.3 In the developed world, ageing populations will mean a shrinking workforce, creating a strong incentive for companies to reskill existing employees. An added incentive: hiring externally costs substantially more than training existing employees. We believe this sets the scene for an attractive market in corporate training and professional accreditations. 

Technology is also enabling advances in automation that will allow certain job functions, such as data processing, to be wholly or partly performed by computers or machines. We expect adoption of AI to be rapid and have transformative impacts across jobs, given its potential to influence nonroutine jobs, across both high- and low-skill roles. In its Future of Jobs Report 2020, the World Economic Forum (WEF) shared that by 2025, senior executives expect the share of time spent on current tasks at work to be equally divided between humans and machines. 

All told, the WEF estimates that by 2030, we will need to reskill a billion people. Workforce development policies and the increasing number of companies and governments dedicating funds to reskill employees testify to a growing awareness of the issue.

The disruptive potential of “EdTech” — Technology is also changing the education industry itself, a transformation that was accelerated by the pandemic, as schools and universities were forced into the greatest-ever experiment in online and remote education. This led to new business models, consolidation in the markets and government efforts to build more effective, agile and resilient education systems.

We expect to see a rise in blended teaching models — balancing in-person and online experiences — and adoption of new digital tools. We also anticipate an unbundling of the traditional degree, which will open the university experience to a broader market of learners — both on campus and on computers. We see this trend filtering through to the informal side of the education market, where new delivery models and online resources should drive a larger appetite for self-directed learning like after-school tutoring or adult education. These learning experiences will be facilitated by companies that offer dedicated platforms and educational content.

Case in point: Cloud-based educational software in the US 

A US provider of cloud-based software for primary and secondary school education offers student information systems, enrollment, education communication tools and other unified services. The company is in a strong market position and its solutions reach 75% of students in the US. 

Example is for illustrative purposes only and not intended as an investment recommendation.

The investment opportunities and risks

We believe these trends will benefit a wide variety of companies and industries, including:

  • Companies providing solutions and support to children in full-time education, such as after-school tutoring, providers of educational material and companies offering early years childcare and learning
  • Companies harnessing the disruptive power of EdTech to create online courses, learning platforms, management systems and online universities 
  • Providers of tertiary education — universities, vocational colleges — as well as companies that are beneficiaries of growth in these areas, such as student loan issuers and student-housing providers
  • Companies fulfilling the need for workforce reskilling or upskilling, such as providers of job placements, corporate training and development, or adult learning courses 

As with any investment theme, there are risks to our outlook, such as inadequate governance within the new EdTech sector, or the risk of government clampdown on the profitability of learning providers, given education’s role as a public good. But we believe that the opportunity within education, across the full human capital value chain, is significant, and that long-term-oriented investors can benefit from the disruption and structural change that is poised to transform the industry.


Source: The UN, 2022 | Source: The World Bank, 2022 | Source: LinkedIn, 2021. Analysis drawn from user profile data and may be influenced by how members choose to use the platform.

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