The Silver Economy put to the test by COVID-19

In 25 years’ time, there will be twice as many people over the age of 65 in the world as there are now, and 30% of the world’s population will be over 80 years old. The ageing of the population is therefore well and truly underway, and a corollary of it, the Silver Economy, has been seeing a trend of long-term growth. Nevertheless, the COVID-19 crisis has left its mark, severely testing certain business models while at the same time bringing new opportunities. Having been at the helm of the R-co Thematic Silver Plus fund for nearly 10 years now, the thematic management team at Rothschild & Co Asset Management Europe is drawing up an initial assessment.  

What impact has the COVID-19 crisis had on the Silver Economy?

Faced with an event of such magnitude as the COVID-19 pandemic, we have been able to observe a clear dichotomy between the consumption of essential goods and services (medicines, online services, food distribution, etc.) and those whose consumption can easily be dispensed with (hotels/leisure facilities, audio-visual equipment, etc). In the healthcare industry in particular, the COVID-19 pandemic has led to a race to innovate and incorporate new processes. Never before have so many resources been mobilised in such a short period of time to fight a disease, whether that be in terms of diagnosis or in terms of research into treatments and vaccines. It is, however, still difficult to say which projects are actually going to succeed as the technologies are still new, particularly when it comes to developing vaccines. It also worth highlighting that some laboratories are joining forces to develop a treatment, as is the case with Roche and Gilead Sciences.

This health crisis has brought to light certain shortcomings within healthcare systems. What impact could this have on the investment theme? 

The COVID-19 crisis has clearly highlighted the fragility of the elderly and exposed beyond any doubt the lack of investment in hospitals, particularly in intensive care units and in medical infrastructure more generally. We can reasonably expect that additional budgets will be made available to improve the situation and tackle the needs of the elderly.

In France, for example, the Minister of Solidarity and Health has just announced plans to create a fifth branch in Social Security in addition to the retirement branch, dedicated to dependency which will have resources of its own. A report from March[1] 2019 estimates that it will cost 30 billion euros per year, and the COVID-19 crisis has certainly acted as a catalyst for this project which had been discussed for several years. For its part, Germany has announced an investment plan worth almost 10 billion euros dedicated to healthcare. It will be structured around five axes, including the financing of medical infrastructure and the relocating of the production of drugs and medical equipment.

Coming back to the crisis itself, the areas raising the most questions area potential resurgence of the virus, or even see it becoming seasonal, as well as the race to a reliable vaccine. If the substantial research costs and lockdowns were to become recurring phenomena, one can undoubtedly expect a negative global impact, including the theme in question. But experts agree that a vaccine is likely to be developed within 18-24 months, with questions around its funding quickly answered. In May, the European Union successfully raised EUR 7.4 billion from public and private funds to support the research.

[1] LIEBAULT, Dominique, CONCERTATION Grand âge et autonomie, Dicom, March 2019.

The COVID-19 crisis has also sparked changes in our consumption habits. How have companies involved in the Silver Economy adapted?  

Here again, the impact has differed depending on the activities carried out. Cruise operators have been strongly affected by the challenges of having to repatriate their passengers, hospital capacity abroad, and sudden border closures. On the other hand, all businesses connected to e-health (such as teleconsultation) and e-pharmacy (online sales of medicines and non-prescription products) have grown significantly and will continue to become more prominent. The diagnostics industry has also been in the spotlight during this crisis, and demand and needs will remain sustainable to handle a potential resurgence of the pandemic. Similarly, online entertainment providers will continue to ride the wave of increased demand. Finally, certain segments still relatively unknown to the stock market a few months ago, are now raising more interest (these include home delivery and telemedicine).

Care facilities for the elderly have often been mentioned during this crisis. What might the sector’s reaction be? 

The impact on retirement homes will prove to be largely negative, but it is interesting to see that some of the specific needs of seniors have been highlighted, along with an even more determined desire to develop home care services. Indeed, 85% of seniors want to keep on living at home. This trend, which could already be seen before COVID-19 emerged, has only been reinforced with the growing development of solutions for dependent elderly people at home. An important debate is under way to develop appropriate solutions, whether in healthcare or home automation (updating houses by installing fall detectors) to enable seniors to live at home for longer.

Another aspect to consider is the high cost of a day of hospital care. Home care is favored as it is a more cost-efficient solution. Oxygen therapy and solutions to sleep-related problems can now be carried out at home. Companies such as Air Liquide, as well as smaller companies like Bastide Le Confort Médical Group, provide this type of service. Shared housing is another trend showing positive momentum among seniors and across generations, thanks to multiple services aimed at improving safety at home now available.

Are the issues raised by the COVID-19 crisis ultimately likely to foster the development of the Silver Economy?

The COVID-19 pandemic has obviously affected each sector in very different ways. However, this crisis has highlighted the incredible capacity of stakeholders within the healthcare sector to mobilise, and the increasingly crucial nature of digital tools. It has thus revealed the glaring shortcomings of our health systems, particularly related to elderly care. There is no doubt that public policies are going to work towards remedying these shortcomings with even greater conviction. Moreover, the needs that have been exacerbated by the COVID-19 crisis provide opportunities for economic players wishing to invest in order to meet them. Ultimately, this crisis has made it blatantly clear that one of the most powerful drivers behind the development of the Silver Economy, alongside demographics, is, and will undoubtedly remain, technology and innovation.

In the healthcare sector, for instance, whether in terms of operational efficiency, accessibility of care or cost reduction, digital technology is becoming ever more present in the medical world. By way of example, software developers dedicated to healthcare share a market worth an estimated USD 188 billion worldwide in 2019, a figure that could reach USD 391 billion in 2024. The COVID-19 crisis has also accelerated the use of teleconsultation in retirement homes. It is estimated that e-healthcare is already worth 58 billion euros globally, suggesting a strong growth potential here. Medtechs, using technologies such as robotics and artificial intelligence, will continue to provide new solutions. In the private sector, senior citizens have adopted technological innovations that are enabling them to keep in touch with their loved ones (WhatsApp, Facebook, etc.), and demand for these innovations is high. Looking ahead, we can be sure that they will continue to display an extremely strong demand for this type of technology, which facilitates social contact, as well as for any solutions that help them enjoy greater comfort.

If we look to the immediate future, experts say that the global market for IT solutions for home medical monitoring is set to grow from 10.7 billion euros in 2016 to 31.5 billion euros in 2021[1]. The global market for portable e-devices is expected to reach 144.3 billion euros in 2026, as compared with 38.5 billion euros today. This market will include high-tech clothing (‘smart clothes’), smart glasses, smart watches and physical activity trackers[2]. All these devices will offer seniors greater comfort as they age. One can even envisage a situation whereby self-driving cars find a significant opening among seniors. It is estimated that this market will be worth 38 billion euros in 2025 and 70 billion euros in 2035[3]. These figures may come as a shock, but they do show that, over and above one-off crises in general and the one that we are currently experiencing the Silver Economy still has a bright future ahead of itself.

[1] McWILLIAMS, Andrew, Global Markets for Telemedicine Technologies, BBC Research, May 2016. [2] DAWSON, Freddie, Smart Home Sector Could Be Worth Hundreds Of Billions In Next Five Years, Forbes, 30 September 2015. [3] Technopolis, Oxford Economics, WORTHINGTON, Henry, SIMMONDS, Paul, FARLA, Kristine, VARNAI, Peter, The silver economy, European Commission, April 2018.

For more information about the fund R-co Thematic Silver Plus (France)