Funds eyeing the healthcare sector should consider whether the markets are robust enough to allow for exits and whether the IPO window is open, Pantheon Ventures partner Susan Long McAndrews told Private Equity International.
Private health investors can't overlook these factors at a time when the healthcare sector is strained, she said.
While rising US expenditures on health and the consumerisation of the sector are putting a downward pressure on costs, and demand for more transparency and higher quality goes up, the one thing private equity healthcare investors should focus on is the risk-return profile, McAndrews said.
Healthcare represents a significant portion of the US economy at 17.1 percent in 2013 according to the World Bank, and 11 percent of all private equity buyout deals in 2014 were in the sector, according to Bain Capital.
GPs looking at opportunities in the healthcare sector are pursuing anything that would relieve the increasing strain on the healthcare system, McAndrews said. She sees potential in mid-market, buyout and growth equity firms this year. Emerging markets, especially Asia, are another area she is watching. Those markets are seeing the push for higher quality healthcare as more consumers become willing to spend money on it.
But there are challenges healthcare investors should consider, such as finding the appropriate time for selling an investment and who is paying for the medical services, she said. Accounting for these, Pantheon has specialised in mid-market buyouts, she said, aside from the very large buyouts.
Another aspect of healthcare funds that investors should consider is an amalgamation of healthcare and information technology. “There is an increasing intersection between healthcare and IT,” she said, and growth equity ventures are well-positioned for this, where investors can “do more with less.”