No sector exempt from technological disruption

IPO small cap mid cap jennison

15 November 2021
| By Laura Dew |
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No company or sector will be exempt from the rise of technology, according to Jennison Associates, as technology become a greater and greater part of our daily life.

Speaking to Money Management, Sheetal Prasad, small and mid-cap portfolio manager at Jennison Associates, said every company in every industry had to become a technology company.

“COVID-19 has accelerated that and we are having to redefine how we do business,” Prasad said.

“People want to be online at all times and companies embrace of technology will define if they are a winner or a loser, they will be left behind otherwise.”

Two areas where technology was already changing patterns was in healthcare and finance.

“Finance is no longer something you do in person, everything is done digitally and as wealth is transferred, that millennial generation are embracing technology,” she said.

“They don’t want any friction, whether that’s with their everyday banking or with digital transactions. There has been some reticence by banks but they need to realise it’s the way to go.

“In healthcare, how we are treating patients is changing, we are able to offer telehealth appointments and then use data to decide which treatment is best for the patient. Going to the doctor used to be cumbersome but now we can use digital tools to improve that.”

This echoed comments by Helen Xiong of Baillie Gifford who said the four areas ripe for disruption over the next decade would be healthcare, finance, education and energy.

Working in a small and mid-cap, Prasad said she noticed the market cap of companies in this space significantly increase in the past few years and a ‘mid-cap’ company could now be as large as US$60 billion ($82.4 billion).

“Small caps would be up to US$10 billion and mid-caps could be up to $60 billion, the definition has definitely expanded as mid-caps used to be about $15 billion,” she said.

“These companies are growing rapidly from an earnings and stock perspective.”

This was compounded by the fact many were opting to stay private for longer which meant, when they did list, they were already established businesses. There had been a trend since the pandemic for more and more companies to come to market after years in the private space, she said.

“Companies have been private for longer so they have been able to develop and to invest in their business,” she said.

“In the last 12 to 18 months, we have seen the pace of [initial public offerings] IPOs at a level I can’t recall in my career. These companies are established businesses with substantial revenues so we are excited about the opportunities.”

Jennison often opted to get to know companies while they were private which meant they were ready when it did list.

“We do get involved in IPOs and get to know the companies while they are private so we are ready when they IPO,” she said.

“This gives us greater confidence and IPOs are an important part of finding new companies for us.”

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