The business of investing has been transformed by rapid advances in technology over recent years. In the articles below, we explore how the next phase of technological development might affect markets, private equity investing and the real estate sector.

Dr. Tom Arnold

Global Head of Real Estate,
Real Estate & Infrastructure Department

Technological advances are transforming the way people work, live and travel. For real estate investors who anticipate these changes and adapt their strategies accordingly, the competitive advantages may be significant. Those that don’t are likely to underperform.

For end users of real estate, the future offers increased transparency, efficiency and flexibility. Collaborative workplace organisations are knocking down literal and figurative ‘walls’ and changing real estate dynamics. These shared office spaces provide users with greater choice while charging flexible rents driven by demand / supply algorithms and used services.

With greater availability of real estate data and the rise of technologically advanced buildings, the role of real estate operators is changing. The smart buildings of the future will be equipped with sensors that internet applications can read and translate into usable data, more popularly known as the “Internet of Things”. IoT can improve both the real estate industry and the everyday lives of individuals through the application of predictive maintenance and smart energy management.

Although still in its infancy, autonomous transportation is expected to have the greatest impact on the urban landscape and future building uses. Buildings designed today will deliver into a world where private car ownership is even lower than it is today. Developers are already adding drop‑off platforms and building infrastructure to accommodate car sharing services. Also under consideration is the need to ‘future‑proof’ parking facilities, with the garages of today potentially becoming the urban logistics, housing or even data centres of tomorrow.

It is important to remember that physical assets cannot be transformed overnight. This requires owners to be especially attuned to the trends and expectations that will drive demand for their assets, not just now, but potentially decades in the future.

Humaid Salem Al Darmaki

Head of European Growth,
Internal Equities Department

Technology has already transformed the business of investing in listed equities, but will become an increasingly significant driver of returns in the years and decades to come.

For investors, technology is likely to provide new and dynamic tools to efficiently gather and analyse data, and ultimately generate insights. For companies themselves, the ability to harness technology and counteract the risk of potential disruption will become important differentiators.

In the distant past, investors manually analysed companies on an individual basis. Now, they have real time access to financial data sets – from company financials and broker estimates to economics data – that enable them to build complex valuation models used to forecast future returns. This systematic, data‑based approach, known as quantitative investing, is likely to become increasingly sophisticated in the years to come, as processing power increases and new sources of data emerge. These could include, for example, payment processing databases and satellite imagery.

However, while data is a powerful tool it does not provide all the answers. Investors seeking an edge must also look carefully at which companies are using technology to drive operational efficiencies and improve margins. Companies that successfully harness their internal data to improve performance will differentiate themselves against peers and achieve higher valuations.

On the flip side, companies will continue to face challenges to their business models from potentially disruptive technologies, and either adapt or fall behind. In some sectors, the trends are already clear. For example, leaders in the industrial software space are now well known and their valuations reflect their success. Among automakers, the emergence of electric and autonomous vehicles is weighing on valuation multiples and will likely continue to drive sentiment and pricing for years to come.

For investors, there is no one‑size‑fits‑all framework for analysing the threats and opportunities that technology will bring. However, one thing is already becoming clear: Management teams that embrace technology should benefit from faster growth, higher barriers to entry and higher stock valuations. Those that do not, risk being serial underperformers.

Hisham Hasan

Senior Portfolio Manager,
Private Equities Department

Private equity has made significant inroads in the tech space over the last decade, helping to identify and fund many innovative technologies. In the years to come, private equity firms are likely to apply this thinking to themselves: using technology to transform the way they source, analyse and grow their investments.

While adoption is still in its early stages, PE firms have begun to augment their manual, relationship‑driven approach to identifying investment opportunities with an overlay of data analytics. This involves gathering data from multiple public and proprietary sources into an analytics platform, enabling them to identify companies and sectors that display attractive investment characteristics. Doing so can provide a significant edge in identifying proprietary opportunities and prioritising where they deploy resources.

Technology also has a powerful role to play in due diligence. Given the increasingly compressed timeframes for many sell‑side processes, the ability to deploy in‑house data analytics teams is becoming ever more valuable. By working alongside investment professionals, data analysts can rapidly validate the rationale for a transaction by analysing their target’s data from multiple perspectives

However, over the medium‑to‑long term, the ability of PE firms to generate outsized returns is likely to come from their ability to use technology to enhance value at their portfolio companies. Early adopters are already starting to develop analytical frameworks to capture data from a wide range of internal and external sources, as well as from across their investments. Their objective: to ensure that knowledge and best practices are shared efficiently between their portfolio companies.

Those firms that effectively implement this data‑centric strategy will likely see their competitive advantage increase over time as they build a moat of proprietary talent, data and insights.