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Healthcare is one of the largest and fastest-growing global industries, and it has the power to transform living standards. Private equity firms have played an active role in the global healthcare sector for decades and it continues to provide a large and growing opportunity set for investment. The global healthcare market is estimated to expand to $9.9 trillion by 2030 and $14.4 trillion by 2050.
Several key trends are driving its current growth phase: shifting demographics, namely an increasing and ageing population; technological developments, such as electronic health records and smart medical devices; and the evolution of niche areas like pharmacogenetics. The industry is also characterised by the depth of its sub-sectors, from healthcare services to pharma to medtech, all with different underlying drivers and opportunities. Equally, there are distinct market dynamics at play across geographies.
Given the healthcare industry’s breadth and complexity, it is a challenging sector for investors to navigate. There are risks, such as a changing regulatory backdrop and ever-increasing public scrutiny. It is also extremely competitive, as healthcare’s historically high returns over other sectors continue to tempt new investors. Private equity healthcare deals entered since 2010, for example, delivered an impressive median internal rate of return (IRR) of 26.9%, which is 560 basis points higher than the median for other industries.
As ever, manager selection remains crucial for any potential investor to consider, as there is a significant dispersion of returns between the top and bottom-quartile funds in healthcare deals. Investors should also be aware of the material margin between the performance of specialist and generalist investors, both on a cost-multiple and IRR basis.
For these reasons, we believe specialist healthcare investors with deep domain knowledge and industry expertise are best placed to harness the sector’s trends and support the development of healthcare solutions of the future.
