Charlotte Aguilar-Millan inspects the impact of aging on corporate shareholding in her blog post for our Emerging Fellows program. The views expressed are those of the author and not necessarily those of the APF or its other members.
Corporate shareholding is affected by what ideologies generational cohorts have. In the current year, 2019, we see Baby Boomers, those born between 1946-1964, at their peak corporate shareholding. This is because they are now at, or near, retirement age. Once retirement age hits, corporate shareholding starts to unwind as individuals cash in shareholding for retirement income. This is likely to peak for Boomers in the early 2030s. With this peak enters a new phase of corporate shareholding by Generation X, those born in 1965-1976, but more prevalently by Millennials, those born in 1977-1995. However, with this new phase of investing comes a different ethos.
The term “ESG” - environmental, social and governance - was first coined in 2005 as a result of growing expectations that Corporates need more transparency and a documented moral compass. These new requirements ensured that Corporates had to demonstrate transparency including how they are responding to climate change as well as how they treat their workers. From 2005, this has grown to represent roughly 25% of all investing activities. Corporates have incorporated ESG into their operating model. An example of this can be seen from Tomás Carruthers, former CEO of Interactive Investor, who launched “Project Heather” in 2018. His aim is to build the first regulated investment exchange to be focused on businesses that are making measurable positive social and environmental impact.
The rise of ESG investing has not meant that the format of investing has remained consistent. Public trust between generations is in decline. Where Boomers were happy to select individual stocks from a stock exchange, Millennials do not invest in this manner. With the average age of homeownership increasing, in the UK it is currently around 32 years old, the point at which a Millennial can start investing in stocks and shares has shortened by a decade to their previous generation. As a result, Millennials seek to locate trustworthy investments given they have a shorter period than previous generations to save for retirement.
The growth in private equity is providing Millennials with this platform. Private equity backed companies in America grew by 300% between 2000-2018 while individual stocks declined by 43%. Millennials see that with private equity, an opportunity is given to smaller companies for growth without the time and expense drain of becoming listed. This in turn can stimulate the economy with innovative ideas that might not be realised without funding. Millennials have also seen the rise of the “unicorn” within private equity where a company is valued at over $1billion making it an enticing return opportunity.
For markets to expect Millennial’s investing strategies to be the same as that of the Boomer’s is complacent. Millennials have grown up with a higher scepticism and lower trust environment than their previous counterparts. They are not expecting a golden retirement. Instead, they look to impact investing to create an ethical environment. With an aging population brings forth a new phase in those accumulating and investing wealth. This in turn will have a significant impact on corporate shareholding.
© Charlotte Aguilar-Millan 2019