Education is, among many things, a powerful social elevator. Investing in the development of higher education learning centers not only fosters social development and mobility, but also provides long-term positive returns. Discover our 5 expert tips to help current and future investors in the higher education landscape.
Education macroeconomic trends
Private education is a rapidly expanding market and this is occurring in all types of economies; from developed to middle income and emerging economies. In some parts of the globe, the poor quality of state education, in tandem with rising wealth and a family’s ability to pay, has led many parents to seek alternatives to the state sector. As a result, enrollment in education has increased: between 1991–2003 the growth in private enrollments outstripped that in public enrollments, particularly in certain geographies.
Although figures may vary according to the criteria used, it has been estimated that the entire private education sector has reached a market size of $400 billion. States cannot afford to educate all those who are qualified and wish to be educated, and consequently, the private sector (with or without the state’s support) is addressing this gap.
Other estimates consider that the global education market is set to reach at least $10T by 2030 because of the combined mix of demographic expansion and advancements in education technology. According to Holon IQ, the following decade will see an increase of 350 million post-secondary graduates and nearly 800 million K12 graduates compared to today.
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Invest in education: an opportunity for private investors
The growing demand for education is not fully met by governments; private players have an opportunity to supply an unmet market demand while also focusing on investment with a high social value.
UBS predicts that for-profit post-secondary and higher education are expected to exhibit a double-digit growth rate annually over the coming years. These areas are also where the private sector is playing a pivotal role. Investors in private higher education can expect positive returns on their investments.
Financing private education is a growing business indeed. Overall, education investments exhibit a higher level of principal protection than in some other sectors such as technology or some sub-sectors in healthcare. It is also important to bear in mind the medium to long-term distinct business dynamics of this sector.
As the education sector becomes increasingly recognized as a strategic growth prospect in the long term, financial institutions are, therefore, encouraged to revisit their product offerings for education.
While every case is unique, some driving forces support these types of projects. They often reflect not only the investors' drive, but also the environmental characteristics and opportunities of the market that they wish to invest in. Projects aimed at the development of learning centers are often based on the willingness to invest in a growing business with solid financial returns. Education is often a non-cyclical business that provides significant recurring revenue and stable cash flows.
A study from McKinsey has demonstrated that impact investments can be employed sustainably and can meet the financial expectations of investors. It is the combination of these qualities that make investments in educational initiatives a highly attractive option.
Invest in education: Why consider hospitality?
Hospitality has become an integral part of various businesses, and is a key player in almost all customer-facing roles within and outside the service-oriented industry. Having moved beyond the traditional hotel and restaurant contexts, hospitality students with a transferable skill-set that helps them appreciate and adapt to the dynamic market environment will always remain in demand. With companies irrespective of their operating industry placing a key emphasis on communication skills, teamwork and adaptability, hospitality graduates find themselves working in allied industries such as banking, luxury, consulting and government organizations.
The demand for quality education is forecasted to grow. In some countries, the applicant to seat ratios is particularly high, with up to 4 times the number of applicants than available seats.
Two areas to focus on while developing a learning center:
- The first focus area looks at the development of the school concept. This part includes the development of a business case and a 5-year P&L.
- The second area of intervention looks at the academic content and components. The development of an academic structure to ensure that the student experience reflects the sought objectives and to achieve the desired learning goals are critical to the long-term success of the learning center.
It is a very delicate balance, as educational institutions need to have both a financially sound structure and strong academic quality at their core. This work requires a carefully designed balance between academic ambitions and financial expectations.
Invest in education: key aspects to consider
While it may be difficult to achieve this balance, the following points may help potential investors focus on key aspects of the development of a center of education:
- Timing: Backward planning is key in developing learning centers. It takes a certain vision to realize what is the need in the short term, this requires a rather long-term prior preparation. Certain mandatory activities such as licensing and accreditation may take years to complete.
- Education is a long-term and forward-looking investment: It is of the essence to look at what industries and sectors will remain relevant in a decade from now when designing the school curriculum. Planning an educational institution requires a clear understanding of the “graduate profile” that the institution can prepare. In a dynamic market environment, a distinct organization is required to provide students with the set of soft skills and mindset development frameworks that make them ready for jobs that do not yet exist.
- Develop a realistic P&L: This may seem like common sense, but too often the tendency is to show overoptimism in figures and forecasts. Truth is, the start-up period for a learning center takes a wealth of energies and resources. While this is true for any business, it is even more applicable to a learning center: imagine you won’t see the first batch of graduates until 3 to 4 years from opening.
- There is no “one size fits all”: To remain relevant, an educational institution must respond to actual needs, primarily those from the labor market. The development of learning centers requires a distinct understanding of the most compelling industry needs as well as students’ and families’ expectations and ambitions
- Look beyond the here and now: Education is evolving at a rapid pace, and so are the opportunities linked to it. Consider positioning your institution among its peers at international level. The opportunities for collaboration are many and not just limited to the most typical “student transfer” dynamic.
