$200 billion will be invested into Healthcare Infrastructure over the next five years, according to a new report published by Octopus Group based on a global survey of institutional investors. The investment opportunity is driven by the current shortage of good quality housing to suit later life which is urgently needed to accommodate the growing numbers of retirees and elderly, as highlighted in the research.
The report is based on a survey of institutional investors which had a collective $6.8 trillion of assets under management*. It revealed that the respondents which are already invested in Healthcare Infrastructure plan to increase their stake in the asset class by more than half over the next five years from 6.1%, to 9.5% by 2023, with ageing demographics supporting the investment case.
The number of people in the world aged 60 and over is set to rise from 962 million in 2017 to 2.1 billion by 2050.** This growth is driving investor appetite for specialist, high quality accommodation and healthcare facilities, including retirement communities, care homes and doctors’ surgeries to meet the needs of retirees and the elderly.
The respondents to the report indicated that the UK is one of the most attractive regions for future inward investment into the sector. In spite of Brexit, more than seven in 10 of those investors surveyed which have yet to invest in the sector are still considering allocating funds to the UK, while 60% of those global institutional investors surveyed invested in Healthcare Infrastructure already focus investments in the UK.
Commenting on the report’s findings, Benjamin Davis, CEO of Octopus Healthcare, said:
“Not only is the ageing population growing, but the make-up of this group is changing beyond recognition. Improved quality of life in later years is transforming the way the over 60s live. This group is more active than ever before and have higher expectations than previous generations. Globally there is a significant lack of accommodation to cater to this varied group’s needs. This demographic shift is creating a strong investment opportunity for institutional investors.”
Alongside these demographics investors surveyed cited the following key drivers for investment into the sector:
- Nearly half of respondents (46%) cite attractive risk-adjusted returns as a driver to invest with almost a fifth of respondents investing in the sector (19%) experiencing over-performance.
- Almost two-fifths (39%) of those invested record between 10% to 15% returns over the past five years.
- Two-thirds of respondents are attracted to the sector as an opportunity to diversify their portfolio and pursue an investment that has low correlation with broader financial markets.
Hiti Singh, Head of Institutional Funds at Octopus, said:
“The expected end of the market bull run, coupled with heightened political risk across the globe, is driving institutions to alternatives in a hunt for returns. Alternatives and within this, real assets, meet institutional investors’ requirements for long-term, tangible investments.”
Barriers to investing
While there is strong interest from existing investors, there is still a significant pool of untapped capital. Institutions surveyed highlighted a number of barriers to investing in Healthcare Infrastructure that will need to be overcome to drive additional investment into the sector. Almost half (45%) point to a lack of healthcare sector-focused resources and skills within their own organisation as a barrier to invest. The second-biggest challenge, cited by 44% of respondents, is governmental and regulatory barriers. Increasing regulation and the changing role of public and private capital in infrastructure projects can create uncertainties for investors. The role of specialist advisors and sector experts is even more pronounced in this market landscape.
Key findings at a glance
Current and future investment demand is strong
- Globally, institutional investors already investing in Healthcare Infrastructure allocate 6.1% of their investment portfolio to the sector and are looking to increase this by more than half to5% of their portfolio over the next five years.
- Asian investors were the most active with an average current allocation of 10.6% of their portfolio, rising to 12.1% over the next five years.
Returns look promising
- Seven in ten (71%) of those respondents already investing in the sector say their Healthcare Infrastructure investments are either performing as expected (52%) or over-performing (19%).
- Almost four in ten (39%) investors report an annualized net IRR of between 10 – 15% over the past five years.
- Global respondents expect the strong returns to continue and anticipate an average return of 10%. Asian investors were the most bullish, expecting future returns to reach 13% on average.
Diversification and demographics drive demand
- Diversification is the prime driver for investors. The search for attractive risk-adjusted returns has taken on new urgency. The bull market looks to be running out of steam and political uncertainty is now a global concern. Healthcare Infrastructure is attractive in this context as it is sheltered from macroeconomic factors.
- The supply demand imbalance for quality accommodation and facilities to cater to the ageing population is the second biggest driver for investors. More than half (56%) say demographics is the principal reason for investing in Healthcare Infrastructure.
Europe is the primary focus for inward investment
- Of the regions surveyed, the UK will attract the most inward investment into Healthcare Infrastructure over the next five years, from those who are yet to invest. Six in ten of those global institutional investors surveyed invested in Healthcare Infrastructure already focus investments in the UK.
- Europe is the primary focus for inward investment into Healthcare Infrastructure. Nearly half of those invested (45%) prioritise investment in Germany and four in ten (39%) prioritise France.
Notes to editors
*Fieldwork was conducted by CoreData Research between September and October 2018. The sample includes 100 respondents from the UK, EMEA, Asia and Australia. The respondent pool represents a spectrum of organisations including pension funds, fund of funds, insurance company, strategic investors, family offices and private banks. The total assets under management of the sample is about $6.8 trillion. Respondents were classified into two broad categories according to their current allocations to Healthcare Infrastructure – those invested in Healthcare Infrastructure (65) and those not invested (35).
**World Population Prospects: the 2017 Revision
This press release is issued by Octopus Investments Limited which is authorised and regulated by the Financial Conduct Authority. The information contained within this document does not constitute an offer or inducement to participate in a collective investment scheme, alternative investment fund or any other financial product and may not be treated as an offer or inducement in any jurisdiction where such an offer or inducement is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. The value of investments, and the income from them, may fall or rise. The information in this document should not be construed as offering investment or tax advice. Issued: November 2018.