Focus on: Investing in education (part 1): Why the market can grow to ten trillion US dollars by 2030

"Education comes from the screen and not from books, otherwise it would be called booking", Dieter Hildebrandt once said. If only the cabaret artist, who died in 2013, had been able to find out how much the Coronavirus pandemic would prove him right. After all, many people have used the lockdown over the past months to acquire further qualifications online, choosing to learn on the cyber campus in order to respect the social distancing measures.

"This has once again helped the courses of educational companies to counter-cyclical highs, as they have done regularly in the past. In addition, these companies will also benefit from longer-term trends in the future. At the same time, the pandemic has revealed how weak the e-learning infrastructure is in many places and what investment needs exist there," says Paul Buchwitz, portfolio manager of the DWS Invest SDG Global Equities.

He has identified another longer-term trend in emerging markets. There, he says, it is not financially feasible for governments to build university campuses for the expected floods of students. Instead, alternative solutions such as e-learning must be considered – and the private sector is in demand. "If you want to succeed at one of the top universities in China, private educational institutions can be made fit for the rigorous selection process," says Buchwitz. In his view, completely different long-term trends dominate in the USA. For example, the children of a middle class family that is financially depleted due to recent weaker economic growth can often no longer afford to live on campus. In order to address this, American universities are forging more alliances with educational companies to stop the decline in the number of enrolments – and help improve revenues – with complementary digital offers.

The EdTechs are likely to grow disproportionately
The expected investment to make the education system more resilient to shocks such as the Coronavirus pandemic, as well as other long-term trends, should help the sector to grow strongly in the coming years. According to calculations from HolonIQ, a global intelligence platform for educations, it claims that the education sector had already reached the size of the global automotive market by 2018, with around six trillion US dollars. And by 2025, the platform expects the education market could grow to almost eight trillion US dollars, and another five years later it is expected to reach ten trillion US dollars. This would mean that the market for education would be around one trillion US dollars larger than the automotive business at the beginning of the coming decade.

HolonIQ also forecasts disproportionately high growth for so-called EdTechs, whose share of global education spending is expected to rise from 2.6 percent in 2018 to 4.4 percent in 2025. EdTechs, which is an abbreviation for “educational technology companies”, package content and didactics on digital platforms in software that they make available to learners online.
"Although the majority of EdTechs' technology has been mature for years, it has so far only been used sparingly due to the ignorance and inertia of many decision-makers and omnipresent budget restrictions. However, the catalyst of the Coronavirus pandemic has fundamentally changed the situation," says Buchwitz.

More than just temporary solutions in demand
This is particularly true in the USA, where per capita, spending on education is the highest in the world. There, in important states such as California, it is already becoming apparent that many schools and universities will remain closed at the beginning of the autumn semester, which is why teaching must continue to take place online. "This is especially important for numerous private institutions, as it will no longer be feasible to continue relying on makeshift solutions such as Zoom," says the fund manager.

Rather, parents who pay regular fees would demand e-learning solutions that are seamlessly integrated into the overall pedagogical set-up and that achieve the same results as if the students were physically in class. And rightly so, Buchwitz believes. After all, the critical point for success is the commitment, i.e. the motivation of the learners to participate in the lessons. In a class with a teacher present, he considers this comparatively easy. "But which parents have the time and leisure to sit next to their child in front of the computer for eight hours a day and encourage him or her? More creative solutions such as gamification are needed here, whereby learning content is packaged in a playful way," says the portfolio manager. And there is a good reason to assume that schools and universities are striving to retain and develop these skills even after the Coronavirus pandemic: "Many institutions see their resistance to such crises as an advantage in competing for the tuition fees of future learners".

For further information please contact:

Sabina Diaz Duque
+49 (0)69 / 910 14177
sabina.diaz-duque@dws.com

Mirjam Eckert
+49 (0)69 / 910 43248
mirjam.eckert@dws.com

About DWS Group
DWS Group (DWS) is one of the world's leading asset managers with EUR 745bn of assets under management (as of 30 June 2020). Building on more than 60 years of experience, it has a reputation for excellence in Germany, Europe, the Americas and Asia. DWS is recognized by clients globally as a trusted source for integrated investment solutions, stability and innovation across a full spectrum of investment disciplines.

We offer individuals and institutions access to our strong investment capabilities across all major asset classes and solutions aligned to growth trends. Our diverse expertise in Active, Passive and Alternatives asset management – as well as our deep environmental, social and governance focus – complement each other when creating targeted solutions for our clients. Our expertise and on-the-ground-knowledge of our economists, research analysts and investment professionals are brought together in one consistent global CIO View, which guides our investment approach strategically.

DWS wants to innovate and shape the future of investing: with approximately 3,500 employees in offices all over the world, we are local while being one global team. We are investors – entrusted to build the best foundation for our clients’ future.

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