Finding opportunity at the intersection of innovation and sustainability
2019 Investment Innovation Conference
BY Yaelle Gang | January 16, 2020
There are some major disruptions and challenges facing humanity. But, where there are challenges, there can also be opportunities.
One example of a disruptive trend is aging, with people living longer. “That’s going to have, I think, pretty big implications for pension plans because we’re going to have to keep paying those benefits even more and more,” said James Davis, chief investment officer of the OPSEU Pension Trust, speaking at the Canadian Investment Review‘s 2019 Investment Innovation Conference. “And on top of that, as you get older and if you think you’re going to live longer, you’re going to save more, and if you’re going to save more that’s going to push down interest rates, and that in turn weighs on returns of a pension plan and it weighs on the value of the liabilities.”
Yet, opportunities can be found to invest in the technologies that are allowing people to live longer, which can be like a hedge against aging, Davis said. “It’s like why we own bonds to hedge the interest rate sensitivity of our liabilities. We can also look at biotechnology as a way to potentially hedge longevity.”
This is just one example of an opportunity at the intersection of sustainability and innovation.
“[Technology is] going to impact what we invest in, but it’s also going to impact how we invest,” said Davis, noting it’s probably more important not to lose money than it is to make money; therefore, investors can try avoiding those companies that are going to be disrupted as a result of the new technology. “That’s one of the things that we’ve certainty brought into our overall investment risk–conscious mindset within the organization.”
Private equity is one example of an asset class that is ripe for disruption by technology. “The one thing I’ve learned about technology is it disrupts intermediaries, and I think that that’s going to inevitably happen in the private equity space. And you may see platforms that are set up that will, because of the blockchain technology, facilitate the direct investing, or fractional investing, by investors that don’t have that direct access, or don’t have deal teams and so forth,” he said.
As such, smaller investors won’t necessarily need to have those deep relationships that are currently required to get access to deals.
Technology can also potentially allow for tokenization of assets, he added. “I think there’s also tokenization that can happen in corporations as well, where the balance sheet will be broken down into much finer elements and you won’t necessarily just think of things as subordinated debt or senior debt, or preferred equity or common equity. You will actually be buying tokens, which are linked to specific income streams of specific assets within a particular company. I can easily see that be something that happens in the future too. So it’s going to be a really interesting space to watch.”
Overall, Davis is optimistic that solutions will be found to the world’s big challenges. “I believe great investment opportunities are going to be found at that intersection of technology, innovation and capitalism. As they all come together to solve these problems, there are going to be great investment opportunities.”