By: Linkedin
Oct 25, 2019
When most of our clients hear ‘demographics’ they think of aging populations in Japan and Europe, digital native millennials in the U.S., or the working-age population boom in Africa and South Asia. Rightly so.
But what is overlooked is perhaps one of the most important demographic trends for investors: the dramatic change in the lifespan, dynamism, and behavior of companies, not individuals. These changes matter for investors since more than half of a typical portfolio is comprised of corporate debt and equity, either publicly traded or privately held.
I would argue that firms today are evolving more rapidly and radically than ever before, with profound implications for their growth, profitability and returns.
For starters, take Schumpeter’s famed engine of capitalism – creative destruction. Measures of business dynamism have seen quite a remarkable secular decline in the U.S. and Europe over the last decade, a trend that even Silicon Valley isn’t immune to. According to the U.S. Census Bureau, the new-firm entry rate has declined in the U.S. from over 15% in the late 1970s to 10% today. At the same time, the firm exit rate has gone from 13% to 9%.