The year 2014 marked the universal acceptance of the term ‘megatrend’, and the big players – PricewaterhouseCoopers (PwC), KPMG, Deloitte – are using the concept in their analyses of the social and economic direction in which the world is heading.
It would be easy to dismiss the phrase as contemporary jargon but that would be to ignore the profound transformation that global society is undergoing – and to miss the excellent investment opportunities that follow.
So what exactly is a megatrend?
Such a wide-ranging concept is rarely pigeonholed. But perhaps the most powerful definition is this: an irreversible pattern of change set to transform society and drive global economic growth.
Opinions differ over how many megatrends are at play and their exact nature. PwC has identified five: demographic and social change (for example, ageing populations), the shift in global economic power (towards emerging markets), rapid urbanisation, resource scarcity and technological breakthroughs.
According to KPMG there are nine. It adds public debt, climate change, economic interconnectedness and “the rise of the individual”, citing European Union figures that show by 2022 more people will be middle class than poor.
The United Nations predicts the global population will grow from 6.1bn in 2000 to more than 9bn by 2050, with the bulk of the growth in Asia, Africa and South America. By 2050, 70 per cent of all people will live in cities, up from 50 per cent currently. And, by 2025, consultancy group McKinsey & Company estimates that 213 of the world’s top 600 cities by GDP will be in China.
This is the context for what The Economist and others have tagged the ‘Third Industrial Revolution’. It is changing the lives of billions of people, forcing us to become much more efficient and innovative as the pressure on services, resources and infrastructure intensifies.
How, then, do investors tap into these megatrends?
The fundamental answer lies in technology. The drive for efficiency is being powered through the accelerating use of data collected from connected devices – sensors, cameras, mobile devices and satellites. The business of linking them, collecting their data and using the data to develop new insights for products, services and policies is what commentators call the ‘Internet of things’.
But this is not merely about IT and big data. It is about technologies that, quite simply, do more with less. Investors should be looking to sectors such as energy, water and health, where we find technology-driven products and services that are capable of making major improvements to lives in developed and developing worlds alike.
The challenge for investors is to identify those companies that are best placed to exploit the megatrends. This does not mean taking a blind punt on technology start-ups in east London’s ‘Silicon Roundabout’, rather it involves seeking out companies that have made real technological breakthroughs and already have a proven track record both in innovation and sales.
Take University of Cambridge spin-out Owlstone Nanotech as an example. It has successfully tested a mobile device that can be used to detect people’s breath for early signs of lung cancer. With further investment, Owlstone believes that within two years it could shrink the device so it can be plugged into a smartphone.
Another is Cityzenith, which has established a data aggregation and visualisation platform for cities, citizens and corporations, creating rich data for smart cities. It is already in use in San Francisco, Chicago and Barcelona.
In the energy sector, Yorkshire-based ChillTechnologies has invented a low-cost cooling technology that claims to double the energy efficiency of a diesel generator or gas microturbine by using the otherwise unused exhaust heat. It is already deployed in Australia.
Until now it has been difficult for investors to back these kinds of fast-growing technology companies. But a number of investment vehicles are being launched that give investors easy access to portfolios of technology firms seeking growth capital through tax-efficient, government-backed Enterprise Investment Schemes.
The availability of these funds is a huge boost for companies looking to raise capital to finance their early and growth stages, and accelerate the pace to market of their potentially game-changing technologies. Megatrends are here to stay, and by being wise to them early, savvy investors are likely to find themselves ahead of the curve.
Ben Ferrari is principal adviser to the Future Technology Portfolio and director of partnerships at Climate Group
