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BLOG: Investing in education

Paloma Kubiak
Written By:
Paloma Kubiak

As many a parent will attest, home schooling is tough. Not only is it a struggle to get your child to even engage in schoolwork whilst sitting round a cramped kitchen table, but the way they learn Maths and English has, well, changed since my day!

Lockdown conditions around the world have forced us to find ways of making out-of-classroom learning work for both ourselves and our children almost overnight. It’s only in doing so, that the limitations of traditional models of education have become clear.

Whether it’s banking, shopping, or even healthcare, almost every area of our lives is now touched by technology. But education, it seems has been slow to adapt. Although e-learning has been around for years, it has primarily been for higher education degrees completed remotely, or resources like online books.

So, what does the future of education hold in store? Like so many other things, will the pandemic accelerate a trend towards more digitalisation? And how can we, as investors, make the most of it?

Growing opportunities

There is so much more to ‘EdTech’ than just e-learning. It encompasses any digital hardware, software, or platform redefining the way education and training are accessed, resourced, and consumed. Virtual reality can also be used to take practical exams and blockchain used to record credentials.

But starved of capital for so long, ‘EdTech’ expenditure accounted for less than 3% of the total amount invested in schools and universities around the world in 2019.

Rahul Bhushan, founding partner of the Rize Education Tech and Digital Learning UCITS ETF – Europe’s first education technology ETF – believes that is about to change.

“Expenditure on education and training from governments, parents, individuals, and corporates is now on track to reach a record US$10 trillion by 2030,” he said.

“Venture capital investment in the sector alone hit US$8.3 billion in the first three quarters of 2020 compared to US$7.0 billion throughout the entirety of 2019.”

Chris Ford, manager of Smith & Williamson Artificial Intelligence fund, added: “Some well-known companies are already making great headway. Google Classrooms, for example, uses artificial intelligence (AI) to benchmark the skills and knowledge of a student, and then will suggest learning content that is suitable, ensuring that students are stretched enough, without being too advanced.

“The most thorough implementation of AI we have found in a pure-play education company globally though is with GSX Techedu, which provides learning solutions in China. The company is exploring the application of big data and artificial intelligence technologies so that it can introduce personalised exercise recommendations based on each student’s performance. It also wants to provide automated exercise grading.”

Other more mainstream fund managers are also finding opportunities. At the start of the pandemic, Bob Kaynor, manager of Schroder US Mid Cap fund, told us how he thought the education sector was underprepared for a virtual environment and that it was an area he thought would have continued investment. He went on to invest in 2U, a cloud-based software that allows non-profit colleges and universities to offer online degree programs.

Closer to home is Pearson, a holding in both Fidelity Special Values investment trust and Jupiter UK Special Situations. Pearson was once the largest book publisher in the world, but today focuses solely on education. It even has its own private school called the Pearson Online Academy.

Making education more accessible

One of the downsides of virtual learning is that not everyone necessarily has access to the technology required to take part, and we have seen that lockdown has resulted in some low-income students going without learning as a consequence. This is obviously an issue society needs to overcome.

But digital education can also enable more people to access education, especially in emerging markets. For example, the team behind GSAM India Equity Portfolio highlights how the use of technology is fundamental to India’s new national education policy. The government is planning to create 200,000 digital villages to enable digital education in more remote areas.

Studies forecast the enrolment of some 500 million more students in schools and universities around the world over the next five years alone. Conventional teaching methods will not be able to deal with this, as teacher-to-pupil ratios are already stretched. So, from pre-school to continued learning in the workforce, the investment opportunities in the future could be huge.

Juliet Schooling Latter is research director at FundCalibre