Pension funds trying to change the world — is it justified?

by Sandeep Kumar | June 29, 2021

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Simply put, a pension fund or a pension pot is basically a pot of money that provides retirement income. So, when you and I retire, we’re going to need to live off the money. We might have saved up but right now when we are working, we can invest money into our retirement and that is where a pension fund comes in. It is a large sum of money that is being invested in order to pay you and me when we retire.

Pension funds often pool huge sums of money to be invested in capital markets like the stock and bond markets, in order to produce profit (returns). It represents an institutional investor that invests substantial sums of money in both private and public corporations. The primary purpose of a pension fund is to ensure that there will be enough money to cover employees’ pensions after they retire in the future.

The rise of pension funds

The “unseen revolution” altering corporate ownership in the United States is now evident to all, fifteen years after it was first documented. Around one-tenth of the equity capital of America’s publicly owned corporations is held by the 20 largest pension plans (13 of which are pensions of state, municipal, or nonprofit employees). In total, institutional investors — most notably pension funds — own over 40% of the common stock of the country’s large (and many medium) corporations. Public employee pension funds, which are the largest and fastest expanding, are no longer willing to be passive investors. They are increasingly demanding a say in the companies in which they invest, such as veto power over board appointments, executive salaries, and key corporate charter elements. Pension funds also control over 40% of the medium- and long-term debt of the country’s larger corporations, which is still widely disregarded. As a result, these institutions have become both the largest lenders and owners of corporate America. For years, finance texts have highlighted that the lender’s power is equal to, if not greater than, that of the owner.

One of the most dramatic power swings in economic history is the rise of pension funds as dominant owners and lenders. General Motors developed the first modern pension fund in 1950. Pension funds now have $2.5 trillion in assets, split about evenly between common stocks and fixed-income instruments, after four decades. These assets will continue to increase aggressively for at least another ten years, according to demographics. In the 1990s, unless there is a prolonged depression, pension funds will have to invest $100 billion to $200 billion in new resources per year.

Source: Financial Stability Board

 

 

 

Types of pension funds and its difference

There are two key types of pension funds. The first type is Defined contribution and the second type is Defined benefit.

Regardless of how well the fund performs, a defined benefit fund distributes a fixed income to the recipient. The employee contributes a set amount to the fund. These donations are invested prudently by the fund managers. They must outperform inflation while not losing the principal. The fund management must make a sufficient return on investment to cover the benefits. Any gap must be covered by the employer. It’s similar to an insurance company’s annuity. In this instance, the employer acts as the insurance company, bearing all of the risks if the market falls. Because of this risk, several firms have discontinued offering these policies.

In a defined contribution plan, the employee’s rewards are determined by the performance of the fund. 401(k)s are the most common of them. If the fund’s value falls, the employer is not required to pay out defined benefits. The employee assumes all of the risks.

The most significant distinction between a defined benefit and a defined contribution plan is the risk shift. The defined benefit is being rolled out because it is old school. Defined contribution on the other hand is around for the most part today. Most employers, companies, and individuals are likely to be on defined contribution pension schemes.

Country-wise comparison of pension funds

Globally, the quality of pension systems accessible to workers varies substantially. According to the Mercer CFA Institute Global Pension Index 2020, the Netherlands has the best system, whereas the United States is nowhere near the top.

· Netherlands: Its retirement income system is based on a flat-rate public pension and a semi-mandatory occupational pension tied to wages and collective bargaining agreements. The majority of employees in the Netherlands are members of these occupational plans, which are defined-benefit plans that are industry-wide. Earnings are based on an average over a lifetime.

· Denmark: Denmark features a public basic pension system, an income-related supplementary pension benefit, a fully funded defined-contribution plan, and required occupational pension plans.

· Israel: The retirement income system in Israel is made up of a universal state pension as well as private pensions with the mandatory employee and employer payments. Annuities are typically paid via the private pension system.

How pension fund diversifies its investments

By shifting their concentration to other assets, pension funds can protect themselves from a stock market meltdown. Most pension funds have typically sought growth by investing in shares, but with global stock market valuations so high, the short-term outlook appears dismal. Alternative assets, such as private credit, private equity, and real assets, may outperform a standard growth portfolio on a risk-adjusted basis.

Investors are shifting their focus to alternative credit investments in search of yield due to low bond rates and scheme demographics. As contributions fall, a growing number of schemes become cash flow negative, putting an emphasis on income-generating assets while requiring forced sales of growth assets.

Because interest rates on traditional assets like gilts and investment-grade bonds are so low, trustees are looking into alternative credit markets like high yield, private lending, royalties, and long-term leasing.

 

Performance of pension funds during the financial crisis

  • The funds’ investment performance all suffered in the early aftermath of the pandemic’s outbreak. Their returns, on the other hand, have fared “significantly better” than they did during the global financial crisis when they fell far short of their standards.
  • The funds’ ability to withstand shock was aided by the swift and unprecedented monetary and fiscal support provided in response to the rapid spread of Covid-19. However, improvements in the asset class mix and risk management capabilities of the funds also contributed to the funds’ ability to withstand shock.
  • Since the financial crisis, pension funds have extended their exposure to alternative asset classes such as private equity, infrastructure, and real estate, which has helped to mitigate the risk of their public assets.
  • In addition, the robust liquidity positions of pension funds have helped to protect them from market volatility.
  • During the market upheaval in the first half of 2020, these funds had minor liquidity stress, in contrast to the previous financial crisis. We feel that since then, advances in risk management governance mechanisms have been effective in protecting funds from market volatility.

Source: OECD website

 

How pension fund tackles inflation?

Inflation protection refers to assets that tend to appreciate in value when inflation rises. Inflation-adjusted bonds (such as TIPS), commodities, currencies, and interest-rate derivatives are examples of these. Although the use of inflation-adjusted bonds is frequently justifiable, some have expressed worry about the greater allocation of pension fund assets in commodities, currencies, or derivatives due to the additional idiosyncratic risk they represent.

Liability matching, sometimes known as “immunisation,” is an investing technique that compares the timing of predicted future expenses to the timing of future asset sales and revenue streams. The method has gained traction among pension fund managers, who use it to reduce the risk of a portfolio’s liquidation by matching asset sales, interest, and dividend payments to planned pension payments. This is in contrast to simpler techniques that aim to maximise return regardless of when withdrawals are made.

To supplement social security payments, pensioners living off the income from their portfolios, for example, rely on secure and consistent payments. A matching strategy would entail buying stocks strategically in order to receive dividends and interest at regular periods. A matching strategy should ideally be in place well before the retirement years begin. To ensure that its benefit commitments are met, a pension fund would use a similar technique.

Pension fund driving sustainable investing

Pension funds might be a powerful force in persuading businesses to embrace ESG goals such as tackling climate change and increasing employment justice. However, they must balance these objectives with their fiduciary responsibility to protect their members’ retirement savings. They must also overcome obstacles in the United States, such as gaps in ESG adoption measurements and misunderstanding about government restrictions on such investments. According to the paper, total assets managed by U.S. institutional investors using ESG principles have increased significantly over the last 15 years, reaching $6.2 trillion in 2020, with public pension funds accounting for more than half of that (54%). Climate change and war risks in terrorist or repressive regimes have recently risen to the top of investors’ concerns, followed by tobacco usage, corporate governance, and sustainable natural resource and agriculture practices. Investors’ appetites for ESG principles, on the other hand, oscillate between extremes.

According to the Wall Street Journal, ESG fund investors are moving their focus from growth to value companies, while other institutional investors are “lining up trillions of dollars to support a shift away from fossil fuels.”

Conservative risk measures

Pension funds make guarantees to their members, ensuring that they will be able to retire with a particular level of income in the future. This means they must be risk-averse while simultaneously generating sufficient returns to cover the guarantees. As a result, together with blue-chip stocks, fixed-income instruments make up a large portion of pension portfolios. Pension funds are increasingly looking for additional returns in real estate and alternative asset classes, albeit these assets still make up a modest portion of their overall portfolios.

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This article has been co-authored by Sayan Maitra and Yogesh Lakhotiawho are in the Research and Insights team of Torre Capital.

Related Posts

Reinventing meat and cultivated proteins: Gauging the investor’s interest through sustainable investment products

by Sandeep Kumar

Keep up to date with the latest research

Overview and Evolution

The popularity of alternative meat products from Beyond Meat (NASDAQ: BYND) and others, as well as early regulatory permission for some cultured meat products, has sparked a flurry of investment in this nascent business.

Despite this enthusiasm, the business is still in its early stages and is mostly pre-revenue, with a number of growth obstacles ahead, including the need for clear legal frameworks, more economically viable products, and scalable technologies. As the traditional cattle industry tries to defend its market share from produced protein sources, providers will almost certainly encounter greater lobbying attempts.

Even while widespread adoption may be several years away, improving consumer sentiment, together with increased demand for more sustainable food choices, will undoubtedly boost investment in grown protein products.

The key industry drivers for alternative meat products industry

· Antibiotics and hormones-free: Industrial farming conditions can be unsanitary, resulting in sick animals who are frequently treated with antibiotics. Hormone injections can also help to promote muscular growth or, in the case of dairy, milk production. These therapies may have an impact on human health, such as the transmission of animal hormones to people or the development of antibiotic-resistant bacterium strains. Cultivated proteins are made in sterile conditions without the use of antibiotics or hormone therapies.

· Free of zoonotic diseases: Zoonotic diseases, such as COVID-19, can be transferred to humans through animal meat intake. Because it is produced in a controlled, sterile setting, cultivated beef is deemed safe from this risk.

· Ability to design and change nutrient profiles: Cultured meat manufacturers can change inputs to generate products with better nutritional value, such as proteins, amino acid composition, vitamins, and minerals.

· Food security: Cultivated proteins offer a potentially large new food source that isn’t constrained by livestock’s significant land, water, and food requirements. This is especially essential in light of expected worldwide population growth and corresponding food demand.

· Environmental advantages: Some people believe that produced protein is a better option for the environment than conventional animal production. According to a 2011 study conducted by the University of Oxford and the University of Amsterdam, cultured meat may be produced with only 4% of the greenhouse gas emissions (GHGs) and 2% of the area required for conventional meat production, while requiring 45 percent less energy. 16 Critics have noted, however, that the energy required to create grown meat may originate from fossil fuels, resulting in worse environmental repercussions than animal agriculture in some ways.

 Ethical ramifications: Some consumers, such as vegans, avoid eating meat because of animal welfare concerns. Because no animals are injured in the manufacturing of cultivated meat, it is considered an ethical advance.

The environmental and ethical advantages of cultivated meat are based on a one-to-one substitution for traditional meat. On the other hand, a single cow can provide hundreds of distinct products. For example, if cultured beef totally replaced conventional ground beef, demand for steak, leather, gelatin, and steric acid would remain unchanged, meaning that cattle demand would remain steady, albeit ground beef demand might shift to new markets.

Competitive Landscape and Market Mapping

Source: PitchBook

Investors’ Trust Growing with Market

Compared to the initial years when alternative meat was first introduced to recent years, the market has witnessed steady growth in VC funding from a single $25 Mn deal in 2012 to a total of $303 Mn invested across over 30 deals in 2020. While the annual deal count has nearly tripled in 2018, the average deal size decreased. However, it is expected that the fundings will increase in tandem with the growth in the industry. The first five months of 2021 have seen a surge in investment with over $772 Mn recorded. With this pace, it is expected that the funding activity will triple this year, as compared to 2020.

Source: Pitchbook

Investment trends suggest that the cultivated protein providers have received the largest share of VC funding. Those among the top recipients include UPSIDE Foods, Eat Just, and Modern Meadow. Each of them have received more than $100 Mn funding, individually. Besides receiving funds from VCs, cultivated meat producers have also started to gain trust of investors like impact investors such as AiiM Partners, impact angel investors including Richard Branson, and even large corporations such as Cargill, Tyson, etc. These large companies have started to realise the importance of the alternative meat and are engaging through strategic investments.

How are Incumbents Reacting to the New Alternative Meat Market?

Combining the benefits of plant-based proteins along with cultivated proteins have proven to have cost and scale efficiencies, without leaving a significant impact on nature. Apart from health benefits like low cholesterol and with a taste similar to real meat, the alternative meat sales reached over $1.4 Bn in 2020. This growth in demand justifies why the existing food companies are venturing into this domain.

Based on location, Singapore is emerging as a hub for cultivated meat and is attracting many companies primarily due to ease of access to funds and required talent, attractive regulatory environment and significant market opportunities in South-East Asia. Companies like Avant Meats, Shiok Meats, Aleph Farms, etc. are considering to set up production units in Singapore.

Challenges Faced by the Culture Protein Production

The alternative meat market is yet to realise its full potential. Despite its wide range of benefits, there are certain roadblocks that are restricting the fast growth of the market. The Cultured protein market has three stages of production — developmental scale, pilot sale, and commercial scale. Most companies are yet to access the commercial scale. Once it is able to attain commercialization scale, plant-based meat will be available at a cheaper price compared to traditional options. It is estimated that cultured protein would be 5x cheaper by the start of next decade.

Currently, these options are not widely available to the customers and still require further advances in R&D processes to ensure the growth of the sector. Food Tech startups are continuously evolving to generate cost-efficient alternative meat. It requires huge amounts of investments and specialised workforce to experiment with different techniques from the use of AI, to bioprocessing and 3D bioprinting. This can be taken care of through greater funding from investors. The median funding for early stage VC rounds in cultivated meat startups have gone up from $4 Mn to $9.5 Mn in the last three years. Companies are trying their best to make the alternative meat very close to the traditional meat in taste and texture so that they are able to fully replace the animal meat in the coming years.

A Nascent Industry with Great Potential

Environmental concerns with the regular meat industry, change in food preferences, health benefits, cost efficiencies are some reasons that are facilitating the growth of the alternative meat market. It is estimated that the market for cultivated food, including meat, seafood, dairy, eggs, etc., would reach close to $18 Bn by the year 2035, with a consumption of about 6 million metric tons. While this may be just 1% of the total protein consumption in the future, the market may witness high growth.

Currently, a huge part of the alternative protein production goes into research and development. However, as the market enters commercialisation scale, costs will come down. Studies suggest that by 2035, cell-based and plant-based meat alternatives will be 10x cheaper than the traditional animal products, and will allow families to save over $1200 in food costs. It is also expected that by next decade, companies’ revenue will also increase 100x for plant-based meat.

Although the overall consumption of plant-based meat is currently very less, the market shows no sign of slowing down. The sector is still in its nascent stage and companies can gain from grabbing the opportunities early, which would be possible only through sufficient funding support from investors.

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This article has been co-authored by Sargam Palod and Tamanna Kapur, who is in the Research and Insights team of Torre Capital.

Why the crypto industry needs regulation and will it then become safer?

by Sandeep Kumar

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Money or the currency system has evolved itself over the years. One such system that is raging these days is cryptocurrency. Cryptocurrency is basically a virtual currency that is generated and secured through cryptography, making it almost impossible to counterfeit. While the idea of such currency started to establish in the late 1990s, the first actual cryptocurrency came into existence in 2009 with the creation of Bitcoin. Presently, the global cryptocurrency market has hit the $2 Tn mark as of August 2021, and the market is only growing with more awareness and acceptability.

Features that make Cryptocurrency Unique

What makes cryptocurrency unique are its fundamental features. Let us have a look at these, before we understand the crypto market.

 Security — Cryptocurrencies are secured as they consist of cryptography codes. Each owner has a unique set of encrypted codes which are difficult to replicate. The blockchain technology ensures the integrity of transactional data and is an essential part of the system.

 Decentralised — It is not controlled by any central authority. This feature makes crypto immune to the old ways of government control and interference. The system of blockchain record-keeping maintains transaction records and keeps the network transparent.

 Irreversible Transactions — One has to be cautious before initiating crypto transactions as they are irreversible. Once the permission is granted, the transaction will be carried out completely. And due to lack of regulation, no organisation will be able to help in case of wrongly initiated transactions.

 Limited Supply — There are fixed, predefined amounts of cryptocurrency that can be mined. While some miners release a proportion of total supply to ensure price stability, others release all coins at once. With limited supply, the demand for each crypto determines its price. Hence, it can be quite volatile in terms of pricing.

Apart from the above features, Crypto transactions can be processed super-fast, and do not require any physical location, making it easy to use for the people.

Cryptocurrencies that are Leading the Market

Source: Statista

From just 66 crypto-coins, to more than 6000 in 2021, the growing popularity and advancement in technology has led to growth of several currencies. Out of vast number of options available, the following are leading the market presently:

 Bitcoin (BTC) — The first cryptocurrency created in 2009, by the pseudonym Satoshi Nakamoto, Bitcoin is the largest cryptocurrency in the world. With a market capitalisation of over $856 Bn, it has witnessed a growth of about 8900% in its price in the last five years.

 Ethereum (ETH) — With a market capitalisation of over $357 Bn, Ethereum is one of the biggest cryptocurrency. It is popular among users particularly due to its usability in crypto-goods and non-fungible tokens (NFT). Launched in 2015, Ethereum has seen a significant growth of over 27000% in the last five years.

 Binance Coin (BNB) — Founded in 2017, Binance Coin currently has a market capitalisation of over $70 Bn. It can be easily used to trade and pay fees on Binance platform which is one of the largest crypto exchange platform in the world. Since its inception, BNB’s price has risen by whooping 419000%.

 Tether (USDT)  Tether is a stable coin with a market capitalisation of over $64 Bn. It is the most consistent crypto-coin as it pegs its value to fiat currency like the US dollar.

Source: statisticsanddata.org

Acceptance Around the World

While most people buy cryptocurrencies to gain from price volatility through speculative investments, they have already started to gain recognition as a payment option in many companies across the world. From big firms like Microsoft, CocaCola, BMW to small businesses and even gig workers, across different industries have already started to accept crypto payments. In case of global companies, transacting in cryptocurrencies serves as an added advantage as they are able to dodge additional 2–3% cost they have to incur while making international payments. However, most businesses are dependent on crypto-exchanges that convert crypto payments into fiat currency, which then goes to the receiving party. Tesla’s announcement of accepting Bitcoin as a direct payment option is considered to be a big move in the favour of crypto acceptability. Such instances rally up the prices of the particular crypto coins.

To make crypto payments more accessible, Bitcoin ATMs have been installed at various places. The United States has the highest number of such ATMs. Compared with the rest of the world, the USA has the most number of businesses accepting crypto payments. In June 2021, El Salvador became the first country to accept Bitcoin as the legal tender. Athena Bitcoin, a provider of crypto ATMs, is investing over $1 Mn to install about 1,500 crypto-ATMs in the country. Such moves indicate the growing acceptability to the new form of currency system around the world.

Dark Side of Cryptocurrencies

Decentralisation is the most important feature of cryptocurrency. There is no official organisation that keeps a record of cryptocurrency. While this provides immunity from government interference, this feature has also led to some negative consequences. Due to lack of regulation and anonymity of transactions, it is used for dark activities and frauds. While the blockchain technology makes it difficult for third parties to access transactions, some hackers may be able to crack the code. Recent times have seen an increase in the number of such thefts. From $4.5 Bn worth of theft in 2019 to $1.7 Bn worth of theft in 2020, the value of crime has decreased but the number of crypto theft jumped by 40% YoY. In August 2021, hackers carried out the biggest ever theft of over $600 Mn in digital coins from token-swapping platform Poly Network, of which hackers returned about half of the amount within a couple of days. This shows the vulnerable side of digital currencies.

Changing Regulatory Scenario

Despite the negative consequences, several countries have started to realise the potential of digital currencies. As a result, governments and organisations are working towards changing the policy scenario to make the crypto market a better place.

The US Securities and Exchange Commission (SEC) puts cryptocurrencies under the securities category, on which security laws are very much applicable. The US is even considering strengthening crypto tax measures that will be beneficial for the government as well. On the other hand, China is trying to tighten crypto activities, primarily through crypto mining regulations. While the regulatory scenario across the world is still in its nascent stage, it is believed that clear regulatory norms would remove significant roadblocks for cryptocurrency.

Divided View on Cryptos — What does its future look like?

There is no doubt that the crypto market has seen significant growth since its birth. It has seen widespread growth in its adoption in various firms-big or small, across the world. And when big names like Elon Musk favour such digital currencies, it immediately rallies its prices to a new high. However, there is a divided view about cryptos among big investors. While it is gaining popularity, some of the big investors in the world, including Warren Buffett are against the idea of crypto, deeming it to be risky and worthless, primarily due to its distinctive features.

But at the same time, with the growth of blockchain technology, governments and organisations have started to realise its importance. Several governments have already started working on creating and amending policies regarding digital currencies that would make it a safer option for investors and will also curb the demerits associated with crypto.

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This article has been co-authored by , who is in the Research and Insights team of Torre Capital.

How increased acceptability towards EdTech platforms is changing the long-standing traditional education industry?

by Sandeep Kumar

Keep up to date with the latest research

Edtech market landscape and growth in the short run of pandemic

Edtech abbreviation for Education Technology is the combination of IT tools and educational practices aimed at facilitating and enhancing learning. Edtech encompasses not only the hardware and software program but also the learning theories and the most effective ways to teach people. Edtech solutions are being increasingly adopted as it offers numerous advantages. A majority of educators believe that each student learns at their own pace, a few major benefits that Edtech offers students are the accessibility of resources to learn from and flexibility to train at their individual pace. Another advantage is the comparatively lower cost which makes it more affordable for anyone to expand their knowledge.

Globally the market opportunities amount to $227 Bn and likely to reach $404 Bn by 2025 growing at a CAGR of 16.3%. The global Edtech venture capital funding in 2019 was around $7 Bn, in 2020 this amount increased more than doubled and reached $16.1 Bn! The booming sectors of Edtech are

· K-12 education

· Post-secondary education

· Corporate training

K-12 is the largest segment of the market; however, the highest funding received was by skill development startups. This signifies that the rise of Edtech startups has created awareness for skill development and not just graduation for a successful career.

Snapshots

· Key Players: Byju’s, Yuanfudao, Zuoyebang, VIPKId, Articulate, Udemy. etc.

· Market Size: $227 Bn

· CAGR: 16.3%

· Average Valuation of top 10: $6.49 Bn

Edtech market size ($ Bn)

Source: Holon IQ

The rapid change in industry dynamics post-covid

The pandemic resulted in shutdowns of physical classrooms, globally, over 1.2 billion children are out of the classroom. To tackle this education changed drastically with the rise of e-learning and remote teaching. Prior to the pandemic, the EdTech sector was growing but at a relatively slower rate as online education was still met with some resistance. The lockdown and fear of COVID-19 spread have taken schools, colleges, and educational institutes online, thus leading to the emergence of many EdTech products and services and a rise in adoption. Though in its nascent stage, there has been a significant transformation in curriculum development and pedagogy where we have moved from thinking digital to being digital.

Drivers of growth

The increasing penetration of mobile devices, easy accessibility to fast internet, and the impact of the pandemic and growing online teaching-learning models to keep running the education system are majorly driving the growth. The presence of interactive and immersive learning can impact several as it increases the level of interaction. Educators are also increasingly adopting newer technologies like AI, virtual reality, and gamification.

Edtech development over the past made the educators doubtful about the impact of technology on improving the outcomes of students. It also created suspicion about overreliance on smart devices. However, the situation is now changing with schools investing more in the attempt to integrate new technology into traditionally delicate educational structures. Employers are also investing in such skills with a focus on leadership and management and creative problem-solving.

China and India are the biggest markets for education in the world. The Asian region has always shown lower-income elasticity for education relative to other sectors. Moreover rising access to digital tools and increasing government initiatives in India and China has further emphasized the importance of education.

VC Deal Size

Source: Pitchbook

Segment-wise market mapping and major players

The ed-tech industry, generally segmented into the Pre-School, K-12, and Higher Education sectors have continued to evolve over the years.

With digital learning, the preschool segment is expected to witness the fastest CAGR from 2021–2028. The global early education market is expected to reach $480 Bn by 2026. Implementation of technology in this segment will enable educators to use applications to maintain records of the students in a much more efficient way, as well as help curate interactive games, storybooks, and other content for early childhood learning. Companies like Makeblock, Tinker Garten, Flintobox, etc., provide interactive activity-based learning for young minds.

The major share is captured by the K-12 sector, with a share of about 41% as of 2020. There are great developments in the education system across the globe that supports experiential learning which is enabled with the help of gamification and AI-based technology. While the use of technology such as interactive whiteboards, learning management systems had already started to gain acceptance before the Covid-19 pandemic era, more focus is shifted towards software that provide O2O tutoring, virtual field trips, interactive lab experiments, etc. Key players in the K-12 segment are BYJU’S, K12 Inc., Kahoot, Khan Academy, Chegg, Quizlet among others.

The global higher education market is expected to grow at a CAGR of 10.2% from 2019–2027. With university and college fees soaring, people are relying more on edtech platforms for e-learning, college or career preparations, and even financial assistance. Professionals in the modern world are constantly required to constantly upskill themselves to match with the evolving job opportunities. Thanks to MOOC platforms, one can now have access to the world’s top university courses, sitting at home. Major edtechs like Coursera, upGrad Education, Udemy, Skillsoft, DataCamp, etc. make learning an easy and affordable process for young aspirants and professionals.

Innovations and new technologies leading to a colossal $404 billion market in the future

Implementation of the latest technology contributes significantly to the growth of the edtech industry.

Valuation multiples for the global edtech space

Global peer comparision and their EV/Revenue Multiple

Edtech sector provides a lucrative investment opportunity with high growth prospects, but as evident by the peer comparison as the company grows the market saturates as most of the available opportunities have already been captured. We are cautiously optimistic about entering into the market as later into the life cycle of the business chances of above-par returns will be sleek.

The edtech conundrum: necessity or costly?

Online courses and programs offer cheaper options for learning than traditional education options. According to reports, a degree course in a traditional university or college costs a total average of $85,000. On the flip side, an online degree costs $30,000. This means enrolling for a course online offers students the opportunity to save more tuition fees and boot camps while enjoying greater flexibility. However, that doesn’t mean that the traditional method is not all bad; they offer tangible learning and study experience and access to university resources.

In our opinion both methods have several offerings and calling on better than the other won’t be right as both have their pros and cons. This brings us to the inevitable, that integration of both the methods is the way going forward.

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This article has been co-authored by Ayush Dugar and Tamanna Kapur, who is in the Research and Insights team of Torre Capital.

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