Welcome to this edition of The Street View. The Actis Macro Forum, a global grouping looks at trends beyond the headlines that matter to our clients and other investors in emerging economies.
In this edition we continue with the theme of changes that deepen economies and provide opportunity for investors in our funds. We believe that Deeper and Stronger-D&S-is a source of real value added for long horizon investors who can afford to accept bouts of shorter term volatility.
Economies need more power, technology change needs to be housed in specialist premises and more domestic savings help provide effective financing. All 3 areas are linked with the development of Artificial Intelligence (“AI”) and its potential productivity gains.
Stuart Jackson based in London looks at the application of AI through the lens of our portfolio companies. Stuart finds that AI is not simply a tool in the technology sector but is employed in a wide range of industries. Everywhere and anywhere this is a productivity based investment story.
Julian Kim reports from Seoul on how the 4th Industrial Revolution is delivering end user specified products and services. This requires particular industrial, societal and regulatory conditions. 5G technology is central to this revolution along with data centres to process and manage the vast amounts of data used by AI and machine learning. Data centres are a very specialist commercial property sector and our Asian real estate teams are busy in Korea and China in this area.
James Mittell from our Energy Team and Emily Morse from our Private Equity team look at the fast growing potential of off-grid supply. Off-grid solar and Solar Home Systems have huge potential to meet these needs over the next decade reflecting technology progress and declining prices of solar cells and storage solutions. They predict a multi-billion dollar investment opportunity over the next decade with add on potential for mobile based financial services. It’s an area Actis is closely evaluating, aware that many pioneer investments in this area have been mispriced and poorly executed.
These initiatives all require capital. Investors in Emerging Markets increasingly provide such capital through cross border portfolio flows. These are often volatile flows where sudden stops raise heart beats and diminish returns within nanoseconds. Stable demand for financial assets from other than foreign investors helps offset some of this volatility. Domestically funded pension systems alongside sovereign wealth funds and life insurers provide this demand in middle income countries. I look at the development of such schemes in this edition helped by Street Views from Nicolas Escallon in our Mexico City office and Funke Okubadejo in our Nigeria office. This article compliments the work we published last year on the importance of migrant remittances in poorer countries. Both flows-domestic savings and inward remittances benefit from improved financial services technology and lower transaction costs.