Sycomore AM - Education: a trend led by demography, society and technology

The education sector is a global market currently worth 6,000 billion dollars; it is expected to reach 10,000 billion dollars by 2030[1]. This market, which covers a wide range of industries throughout the world, is currently underappreciated by investors. Yet it will play a key role in the years to come in fighting against inequalities and delivering sustainable economic growth. The theme of education will be addressed from a lifelong perspective, from school to adult life, spanning continuous education and the acquisition of the new skills needed for tomorrow’s job market. Technology will be a key driver in facilitating access and quality education for all. Although in market capitalisation terms, the education industry is considerably smaller than that of health - also a key contributor to raising the value of human capital, both in the public and private spheres - it might offer considerable upside in the coming years. Within the next 12 to 18 months, Sycomore AM expects more than 20 unicorns to go public throughout the world, all operating within the education industry or in businesses directly related to the theme, for a total value of over €60 billion. The education sector benefits from two additional growth drivers: digitalisation, a structural trend that was already playing out and has gained huge momentum with the health crisis, and the fast expansion of a broad middle class outside developed countries.

Many drivers support the solid growth of the education lifecycle, from early childhood to adulthood. One of the most interesting is the growth in adult education, as the global labor market faces long-term disruption due to digitalization, automation and the technological transition. Companies and adults face a challenge of constant upskilling and reskilling. A second factor is the development of the middle class in emerging countries that is creating an unprecedented boom in demand for education, both in terms of quality and quantity: there will be more than two billion new learners from now until 2050. Then there is what is called Ed-tech, technology applied to education products and services, increasing their accessibility and affordability. The pandemic strongly supported this growth, with enormous investments in hardware, software, contents, and training across the entire education lifecycle. Finally, governments need to ramp up education plans to make up for the education deficits caused by the pandemic. Joe Biden has proved his strategic commitment to education with the recently approved American Families Plan.

The megatrend linked to education is less well known than other trends, but it includes many different sectors and business models which make it heterogeneous when it comes to valuations. Within the content subsector, companies have been affected by a decade of transition from print to digital. Hence, valuations are low on absolute terms because they don’t yet reflect future upside potential. At the same time, in the Ed-tech subsector, we see higher valuations justified by the market’s specificities and we expect a double-digit growth within the next decade, thus improving margins.

Following the above consideration, Sycomore AM expanded its SRI fund range with the launch of a thematic global equity fund focused on Education, which draws on the responsible investment approach common to all of Sycomore AM’s strategies. The fund managers select companies providing access to quality lifelong education to as many learners as possible, in keeping with the United Nations’ 4th Sustainable Development Goal: “Quality Education”. Stock selection focus on three company types: i) those providing education through products & services, ii) those enabling education through products & services, and iii) sponsors that leverage education to create shared value with their stakeholders.