Supertrends. Driving forces. Silver economy
At the heart of the “Silver economy” Supertrend lies the expectation that the world’s senior population will double from just short of a billion senior citizens at present to over two billion by 2050. On a global scale, this demographic shift has accelerated in recent years and is continuing with strong momentum. What is appealing about this Supertrend is that, regardless of the state of the world economy, politics and other more medium-term drivers, the population will continue to age, creating new needs in areas such as healthcare, insurance and funding solutions, consumer and property markets.
4.1 Therapeutics & device
Reining in healthcare costs
We continue to believe that healthcare is the sector most affected by an aging population. The incidence of many chronic diseases increases with age, which is why a larger elderly population is tied to a disproportionate rise in healthcare expenditure. Healthcare costs are expected to continue to rise at a rate significantly above the growth of countries’ gross domestic products. This raises an important debate around healthcare costs and calls for solutions to contain them despite demographic developments. Technology can and will play a critical role in providing such solutions. In this context, we refer to our “Technology at the service of humans” Supertrend, which includes healthtech and which we believe can be considered in conjunction with “Silver economy” investments.
Medical progress, too, is looking to provide more effective and affordable cures for the diseases or disorders that come with age. Heart disease, for example, is a leading cause of death among the elderly and leads to global costs of USD 500 billion, according to the American Heart Association. Yet heart disease can be managed or in some instances even avoided if risk factors are addressed. We see a tangible investment case in the area of cardiovascular medical devices, where minimally invasive heart valve replacements, for instance, are associated with a lower interventional burden and better therapeutic outcomes.
Cancer is also in large parts related to aging and already today carries a cumulative healthcare burden in excess of USD 1.1 trillion. Significant efforts to contain that burden are currently underway: biopharmaceutical companies are allocating a disproportionate share of their research and development budgets to oncology, and we are witnessing strong merger and acquisition activity in the segment.
Regardless of medical indication, therapeutic area or nature of intervention (drugs, disease or other forms of therapy), we believe that focusing on value-creating innovation is paramount, as it alone ensures negotiating leverage for pharmaceutical, biotech and medical technology companies in a world facing increasing healthcare costs. We thus focus on companies that have demonstrated strength in innovating.
4.2 Care & facilities
An aging population – in conjunction with age-related conditions and diseases – calls for dedicated care options and settings as well as facilities equipped to provide them. Today’s senior cohorts often live a healthier and more active life than earlier generations, which enables them to live independently for longer, a lifestyle they often seek to maintain for as long as possible. Intuitively, the one-size-fits all retirement home option is therefore no longer going to satisfy the diverse demands of the elderly. Therefore, builders and operators of dedicated senior housing concepts spanning the full spectrum of the care continuum – from assisted living to intensive care – will play a crucial role in satisfying these requirements. Anecdotally, in Germany alone, real estate advisor CBRE estimates that EUR 55 billion in investments will be needed by 2030 to cope with future demand for senior housing, with data points across other developed as well as emerging markets trending in the same direction.
When it comes to care provisioning, managed care organizations will also play an important role. They combine their deep understanding of risk factors, the healthcare environment and a wealth of data assets on historic care episodes and claims in order to guide patients to the most effective care setting, ideally before catastrophic (and, importantly, costly) consequences and complications arise. For example, dialysis patients can be identified early and transitioned into appropriate care, rather than crash into dialysis through a costly medical emergency.
4.3 Health & life insurance
The price of a longer life
Along with the growing senior population comes the need for funding solutions, both for living expenses as well as healthcare expenditures, which can be substantial despite efforts to rein them in. The need for health and life insurance is most substantial in regions that cannot rely on a social security safety net built over the course of decades and that are underpenetrated with respect to insurance products. That being said, we increasingly find data points suggesting that substantial focus on funding solutions is also warranted in developed markets. The Federal Reserve Bank of St. Louis, for example, pointed out that 35% of US households do not participate in a retirement plan and warned that “for many American households, the total balances of their retirement accounts may not be sufficient to ensure a solid life in retirement.” Similarly, Vanguard reported that the median 401 (k) account (a tax-deferred pension account in the USA) for investors aged 65 and older amounted to just under USD 60,000, while the non-profit Pension Rights Center reports that the median annual income from private pensions and annuities came in just marginally above USD 9,000 in 2016.
At the same time, traditional pension plans are under pressure due to low bond market yields and rising longevity. As a result, we are seeing a growing market for specialized insurance companies to take on the pension plan assets and management of large corporations in developed markets. In such an environment, private savings should be a further pillar for retirement, which is why we see an attractive opportunity for asset managers and providers of advisory services. Given similar considerations regarding health insurance – notably the underpenetration in emerging markets and the need to cover unexpected out-of-pocket healthcare costs in developed markets – we would expect a similar trajectory for health insurance solutions.
4.4 Senior consumer choices
Pets: The new grandkids
On aggregate, and despite the above-mentioned concerns, seniors today are a powerful consumer group. Euromonitor projects private spending by seniors to reach USD 15 trillion by 2020, making it the fastest-growing age group on that metric in many regions of the world. This significant spending power, combined with seniors’ considerable free time, has proven to benefit the leisure and tourism sector, congruent, for example, with the increase in cruise line bookings in recent years. Further industries expected to benefit include personal care and beauty products or home automation manufacturers. In addition, some medical equipment and devices, such as prescription glasses or hearing aids in many countries only receive patchy insurance coverage and thus usually feature high on a patient’s out-of-pocket expenditures. This makes the decision to acquire them essentially a consumer choice.
A further interesting angle is in the area of pet ownership. Baby boomers in the USA make up a disproportionate percentage of pet owners (32%) compared to their share of the overall population (23%), and there are now more pet-owning households than households with kids. This finding is a likely contributor to the high percentage of people living with a pet, which is estimated at close to 60% in a study conducted by GfK in 22 countries. Pets come with their own dietary, veterinary care and other supply needs, resulting in an attractive segment of the consumer market. Typical annual expenditures for a dog, for example, amount to about USD 1500 and just shy of two thirds that amount for a cat.
Euromonitor even went as far as to term the great care some of these pets receive as “pet parenting,” pointing to the steep rise in premium dog and cat food market share in a market that – according to estimates of the American Pet Products Association and its European counterpart – already today exceeds USD 50 billion in these regions. Given the historic trajectory of this consumer market segment, combined with rapid innovation in, for instance, smart feeders, self-cleaning litter boxes and pet health insurance, we see an attractive investor proposition in another market segment in part fueled by senior consumers.
- Minimally invasive heart valve replacements: Procedures like transcatheter aortic valve replacement that avoid open-heart surgery.
- Dialysis: Procedure used to remove toxins, water and other agents from the blood of patients with worsening or loss of kidney function.
- Assisted living: Setting for elderly people that facilitates daily life through the use of low-acuity and unobtrusive technologies and services that integrate seamlessly into daily life.